CEVA, Inc.

and welcome to the SEVA Inc. First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's 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, sir.

Thank you, Rocco. Good morning, everyone, and welcome to SEVA's first quarter 2021 earnings conference call. I'm joined today by Gideon Wertheiser, Chief Executive Officer, and Yaniv Ariely, Chief Financial Officer of SEVA. Gideon will cover the business aspects and the highlights from the first quarter and provide general qualitative data, Yaniv will then cover the financial results for the first quarter and also provide qualitative data for the second quarter and full year 2021. I will start with the forward-looking statements. Please note that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect could cause the results of SEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include statements regarding demand for and benefits of our technologies, including 5G technologies and our Bluebud platform IP and related deal flow. Expectations regarding market trends, including growth in shipments of ultra-wideband devices and true wireless earbuds and secular growth in the IoT space. Release regarding benefits of the intrinsic acquisition, as well as the closing of the acquisition. our ability to help customers mitigate risks associated with supply constraints, and guidance and qualitative data for the first quarter and full year 2021. 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 SIVA'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 networks, our ability to execute more base station and IoT license agreements, the effect of intense industry competition and consolidation, and global chip market trends, including supply chain issues as a result of COVID-19 and other factors. Viva assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. And 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. 2021 is off to a robust start with strong licensing execution and royalties exceeding our expectations. During the quarter, we unveiled BlueBud, a first-of-its-kind IP platform for the booming market of the true wireless TWS earbuds, smartwatches, gaming headsets, and other wearables. Today, we are announcing the acquisition of Intrinsics, a Melbourne, Massachusetts-based leading chip design and secure processor IT company with an extensive experience and solid business in the aerospace and defense market. I will elaborate shortly on these strategic initiatives. Total revenue for the first quarter of 2021 was $24.4 million, up 8% year over year. The licensing environment continues to be healthy, with $14.4 million in licensing revenue, down 1% year over year. We signed 11 new agreements, of which two were with first-time customers. China continues to be a very strong market for wireless connectivity technologies, with high adoption rate both by strong incumbents and newcomers. We are experiencing increasing interest for our 5G technologies, specifically the new 5G provision known as Red Cup or Reduce capability, which is target for the proliferation of IoT devices such as wearable industrial wireless sensor, surveillance cameras, and more. Our Bluetooth and Wi-Fi technologies continues to be in high demand for a variety of IoT devices for smart home and mobile devices. We also sign up a lead customer for ultra-wideband UWB technology that we are currently developing. UWB is a short-range wireless communication that is able to precisely triangulate location of devices with high security. It is already widely used in the automotive industry And recently, Apple, Samsung, and Xiaomi have embedded UWB in their flagship models and are gradually embedded UWB in other high-volume devices, such as the recently announced Apple AirTag. According to ABI research, 285 million UWB devices are expected to be shipped this year and forecast to reach to 1 billion devices by 2025. Wealthy revenue reached $11 million, up 21% year-over-year, ahead of our expectations. This was driven by a robust demand for our consumer and IoT products and above seasonal demand in smartphones. We believe our customers are facing tight supply constraints, as is most of the industry, and are working hard to expedite shipments for high-demand products. Let me now go through the rationale for the acquisitions of Intrinsics, which we are announcing today. Intrinsic is a leading chip design and secure processor IP specialist, targeting the growing chip development program in the aerospace and defense market and a range of other IC designs for medical and industrial products. Intrinsic has successfully executed more than 1,500 complex chip design project in its 34 years history, and build a successful business that generates more than $20 million in annual revenue. Over the years, they have built strong relationships with bling chip semiconductor companies, NOEMs, among which are Intel, IBM, Leidos, Lockheed Martin, Honeywell, and many more. Their chip design skills and expertise are scarce and include proven competencies in RF, mixed signal, digital, software, security, and RISC-V processors. With the additions of Intrinsics, SIVA stands to benefit from three growth pillars. First, extending SIVA market reach into the sustainable and sizable aerospace and defense space, a market forecasted to reach $6 billion in annual semiconductor spending. Second, increasing our content in customer design and accordingly increasing license and royalty revenue opportunity, by offering 10 TIP platforms that combine SIVA connectivity and smart sensing IP with intrinsic chip design expertise and security and interface IPs. Third, extending SIVA IP portfolio with secure processor IP for IoT devices and heterogeneous SOC interface IP for the growing adoption of chiplets, which offer a faster and less expensive alternative to the high R&D cost and complexities associated with monolithic IC development. We welcome the intrinsic team to the SIVA family and look forward to the exciting opportunities ahead. We expect the closing of the agreements to take place during this quarter. Yaniv will discuss the financial aspect of this acquisition later on. Another important product we recently introduced is the BlueBot platform IP. The proliferation of true wireless earbuds is skyrocketing as millions of workers, students, doctors, and other professions are required to spend much more time in voice or video calls and need stable and high-quality audio experience from their wireless earbuds. According to recent data from CounterPoint Research and Strategy Analytics, the TWS market is expected to reach to 600 million units by 2022 and to see 70% CAGR over the next The underlying technology used for TWOS has broader uses and is carried forward to smartwatches, over-the-counter hearing aids, mobile gaming, AR headsets, home entertainment speakers, and smart home appliances. With the Bloomberg proposition, CIVA strives to become the de facto standard for wireless audio in the IT industry. Our unique technology competencies and holistic view allow us to address the substantial technology challenges derived from the need for extreme low power consumption and intelligible audio quality. BlueBot is a self-contained platform enabled by our high-runner FIBA BX1 DSP and incorporates all the software framework and hardware peripherals required for a wireless audio system. BlueBot also offers optional value-add SDK, including our WISPRO AI-based voice recognition software, ClearVox, our echo cancellation and noise suppression software, and Motion Engineer for IMU-based user control. I am pleased to share that we have already signed up a high-volume lead customer for BlueBuck at the beginning of the second quarter and are expecting more deals to follow as the product is released to the wider market. So in summary, we are very pleased with our solid performance in the first quarter. Our business fundamentals are strong, and with the acquisition of Intrinsics, we are expanding into the aerospace and defense market and enriching our value proposition and content by offering parent-key IP platform and new IP for security and HSOC interfaces. With our technology-based core competencies and customer relationship, we are well positioned to capitalize on secular growth in the IoT space. Lastly, we are monitoring closely the impact on the industry-wide supply constraint and will help our customers to mitigate their risk and challenges where we can as they become empowered. With that said, let me hand over the call to Yaniv for the financials. Thank you, Gideon. I'll start by reviewing the results of our operations for the first quarter of 2021. Revenue for the first quarter was up 8% to $25.4 million, as compared to $23.6 million for the same quarter last year. Revenue breakdown is as follows. Licensing-related revenue is approximately $14.4 million, reflecting 57% of our total revenue, just slightly lower than $14.5 million for the first quarter of 2020. Total revenue was up 21% to $11 million, reflecting 43% of our total revenue, compared to $9.1 million for the same quarter last year. Quarterly gross margins were 91% on the GAAP basis and 92% on non-GAAP basis, both better than what we projected. Non-GAAP quarterly gross margin excluded approximately $0.1 million for equity-based compensation and $0.2 million for the impact of the amortization of acquired intangibles. Total GAAP operating expenses for the first quarter were just over the high end of our guidance, $24.4 million. Our total operating expenses for the first quarter, excluding equity-based compensation expenses and amortization of intangibles, were $20.7 million, also just over the high end of our guidance. Tax expense for the first quarter came higher than expected due to an uncommon revenue mix in which the majority of our revenues recognized are associated with our connectivity products, Bluetooth and Wi-Fi, originating in France, which is a higher corporate tax rate of 26.5%. On an ongoing basis, our corporate tax rate should be lower and in line with our original expectations, but mainly prudent on the outcome of the revenue allocation rate. U.S. GAAP net loss for the quarter was $3.6 million, and diluted loss per share was $0.16 for the first quarter, as compared to a net loss of $1.2 million and $0.05 loss for the first quarter of 2020. Our non-GAAP net income and diluted EPS for the first quarter were $0.3 million and $0.01, respectively. as compared to the first quarter of 2020 with $3.2 million of net income and $0.11. With respect to other related data, shipped units by SEVA's licensees during the first quarter of 2021 were 341 million units, down 30% sequentially, and up 31% from the first quarter of 2020 reported shipments. The 341 million unit ship, 129 million, or 38%, were for handset baseband ships, reflecting a sequential decrease of 41% from 217 million units of handset baseband ships shipped during the fourth quarter of 2020. and a 16% increase from 111 million units shipped a year ago. Our base station and IoT product shipments were 212 million units, down 21% sequentially, and up 41% year over year. As for the balance sheet item, as of the end of March 31st, cash, cash equivalent balances, marketable securities, and bank deposits were $174 million. We did not exercise our buyback program this quarter as we focused on the intrinsic acquisition and the expansion in the business. Upon closing the deal, our cash balances will be reduced by approximately $33 million in acquisition consideration as well as deal costs. Our DSOs for the first quarter was 49 days, similar to the prior quarter. And during the quarter, we generated $15.2 million of net cash flow operation, depreciation expenses and amortizations of $1.5 million, and the purchase of fixed assets was 1.1 million. At the end of the first quarter, our headcount was 412 people, of which 346 were engineers, up from a total of 404 people at the end of 2020. Now for the guidance. We continue to experience a healthy licensing environment and pipeline is solid. In royalties, we believe our customers are still dealing with industry-wide supply constraints, which means prolonged for the remaining of the year. With that said, the demand for products based on our technology is strong, and our customers, with our support, are working furiously to fulfill their purchase orders. We announced earlier today we agreed to acquire Intrinsic and expect to close the deal later in the quarter. From a financial point of view, We expect intrinsics to contribute between $10 to $11 million to SEBA's top line in the second half of the year, and that this deal will be accretive as early as 2021 on a non-GAAP basis. We'll provide more information on the next earnings call. On the back of this, we forecast our new total revenues for 2021 to be between $116 million to $117 million, compared to about $100 million in 2020. This is subject to the intrinsic acquisition closing on the anticipated timeline. Specifically for the second quarter of 2021, gross margin is expected to be approximately 89% on GAAP bases and 91% on non-GAAP bases, excluding an aggregated $0.1 million of equity-based compensation and $0.2 million of amortization of other assets. Topics for the second quarter should be lower than the first quarter. For the second quarter, GAAP based OPEX is expected to be in the range of $22.9 to $23.9 million. Of our anticipated total operating expenses for the second quarter, $2.9 million is expected to be attributed to equity-based compensation and $0.6 to amortization of intangibles. So a non-GAAP OPEX is expected to be in the range of $19.5 to $20.5 million. Net interest income is expected to be approximately $0.45 million, and taxes for the second quarter are expected to be around $0.7 million on both GAAP and non-GAAP basis, in line with our prior expectations involved. Share count for the second quarter is expected to be approximately $23.5 million. Iroko, you could now open the Q&A session.