CEVA, Inc.

Good day, and welcome to the SEVA second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should 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 your telephone keypad. To answer 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, Market Intelligence and Investor in Public Relations. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to SEVA's second quarter 2023 earnings conference call. Joining me today on the call are Amir Panoush, Chief Executive Officer, and Yaniv Ariyeli, Chief Financial Officer of SEVA. 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 SEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include statements regarding market trends and dynamics, including anticipated recovery in semiconductor startup funding and opportunities for Wi-Fi and generative AI, our market position, strategy and growth drivers, demand for and benefits of our technologies, and expectations and financial guidance regarding future performance, including expected recovery in revenues and guidance for the third quarter and full year 2023. 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 effect of intense industry competition the ability of SEVA's technologies and products incorporating SEVA's technologies to achieve market acceptance, SEVA's ability to meet changing needs of end users and evolving market demands, the cyclical nature of and general economic conditions in the semiconductor industry, SEVA's ability to diversify its royalty streams and license revenues, SEVA's ability to continue to generate significant revenues from the handset baseband market and to penetrate new markets, and SEVA assumes no obligation to update any forward-looking statements or information which speak of their respective dates. In addition, we will 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 filing section of our investor relations website at investors.seva-dsp.com. With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard. Welcome, everyone, and thank you for joining us today. Our second quarter results reflect a dynamic environment brought about by challenging macroeconomics conditions that has led to slower-than-expected recovery in some regions. On the other hand, we also saw resumptions in cheap demand following a few quarters of inventory correction. Our licensing business experience has slowed down in the quarter, which I will explain momentarily. On royalties, we saw our royalty revenue recover to grow 17% sequentially, and we anticipate this recovery can continue in the coming quarters. In licensing, our revenue came in below our expectation. The primary reason for this relates to the semiconductor startups, a customer base that is an important contributor to any IP licensing business. Semiconductor startups rely on venture capital funding to underpin their businesses. Funding for VC for semi-startups slowed down towards the end of 2022, and global VC funding for the first quarter of 2023 fell 50% year over year. Consequently, some of the deals with startups we anticipate closing in the quarter did not come through as planned, and the resulting shortfall in licensing revenue was unexpected. However, we are already seeing funding of startups in the semiconductor ecosystem picking up again and anticipate licensing to these companies will recover in the coming quarters. We also saw mixed results in our design services activities in the quarter, where the overall defense industry is moving slower than expected to conclude new investments. And funding there takes more time. As a result, some projects in our sales pipeline are taking longer to get funded. Looking at licensing business concluding in the quarter in more detail, we signed 17 new licensing and NRE agreements, with noteworthy interest in our wireless communications offerings, encompassing 5G, cellular IoT, Wi-Fi, Bluetooth, and UWB. All of these technologies continue to be in demand with deal signs in each of these areas. We signed three Wi-Fi 6 deals for combo chips, where we also licensed our Bluetooth technology. One of these deals was with a strategic customer, a leading supplier of connectivity chips into IoT devices spanning consumer, industrial, and smart home. This latest deal with the customer is a multi-use agreement as they look to expand their Wi-Fi 6 business on the back of their highly successful Wi-Fi 4 business. So this latest deal with the customer is a multi-use agreement. where they have shipped more than 300 million SIVA-powered Wi-Fi chips to date. As we have discussed previously, the average royalty per unit we get for Wi-Fi 6 is higher than previous generations of Wi-Fi. Having an established customer and leader in this space migrate to Wi-Fi 6 presents another potentially strong contributor to our Wi-Fi royalty stream in the coming years. Other deals of note in the quarter include four new agreements for automotive, Two for our UWB technology for digital keys and in-cabin grader applications, and two for our AI compiler technology that creates fully optimized runtime software for our sensible processors and new PoEM NPUs. Our product offerings are very well aligned with the automotive industry's push towards electrification and even more powerful safety systems. We have many touchpoints already in the car, including our Vision AI processors for ADAS, sensor fusion DSPs for drivetrain and battery management systems, and UWB, Bluetooth, Wi-Fi, 5G, and V2X for safety, infotainment, communications, and connectivity. Our inherently low-power solutions are an excellent fit for automotive industry, And while it can take quite a number of years before our automotive design wins show up in production vehicles, we are very excited about design wins we have secured to date and the potential royalty stream that we can generate from this highly lucrative market. Finally, we signed two new agreements in cellular IoT space, one for our new narrowband IoT technology and another for targeting 5G Red Cap. Now to royalties. After a weak first quarter, we saw a good recovery in the second quarter, driven by smartphone targeting emerging markets and restocking for consumer and industrial IoT products following the inventory correction. Royalties for the quarter reached $9.5 million, up 17% sequentially. we saw SIVA-powered chip volumes increase sequentially across the broad spectrum of markets we address, and a notable recovery in smartphones, PCs, and 5G-based stations in particular. On the last earning calls, we explained there was a significant inventory correction taking place, particularly in the smartphone and consumer IoT spaces, where we have meaningful exposure. Following conversation with our customers and other companies in the supply chain, we believe that this inventory has been worked through for the most part, and our royalties reflect a resumption in demand to refill the channels. We reiterate our belief that the first quarter was the bottom for our royalty business, and we anticipate continued recovery for our royalty business through the remainder of the year. Now, I would like to switch to discuss a new strategic market time expansion opportunity that we are addressing with our products targeting AI, from the cloud to the edge. Earlier this week, we announced our latest neural processors targeting generative AI applications. Generative AI is creating a lot of headlines recently, dominating the AI narrative thanks to JetGPT and other generative pre-trained transformers or GPT models. in general ai is divided into training including deep learning and machine learning and inference including computer vision co-piloting photonics such as fast optical networking and more siva has addressed inference application with our sensor pro and new pro product line for a number of years and has been successful in helping our customers deploy AI across multiple end markets and devices, including industrial, automotive, and consumer. Generative AI takes the AI experience to the next level. Transformer-based models have led to significant breakthroughs in several forms of generative AI. They are key in both increasingly powerful text-to-image models, such as Dell E or Stable Diffusion, and language and instruction-following models such as JetGPT or Stanford's Alpaca. Today, such networks are typically executed on GPU-based compute infrastructure in the cloud because of their massive model sizes and high memory and bandwidth requirements. However, as transformers-based networks mature and become increasingly popular, there is an opportunity spanning all the way from the cloud to the edge to increase the performance and efficiency of executing generative AI. For example, there are new generative AI models which are domain and enterprise specific that use smaller proprietary data sets with fewer parameters and expert systems. These generative AI models don't require GPU-based compute to execute. And thanks to our extensive experience in developing processors that support AI in low-power devices, we have enhanced our new POEM NPU family to support this transformer-based large language models, LLM, and generative AI models to allow natural language processing and generative capability locally, aka co-piloting. with incredible efficiency. This directly improves the latency and overall personal experience of using generative AI, protects the privacy of the user data, addressing a key concern of cloud-based AI today, and significantly reduces the cost per query. I believe that our ability to support transformer architecture with exceptionally low power consumption and highly efficient positions us very well to exploit this new wave of AI across the full spectrum of end markets from consumer IoT to industrial, automotive, and networking. Our new PoEM is already available for licensing to customers, and we are very excited about the potential here to grow our AI footprint with this enhanced product family. In summary, despite the revenue shortfall in licensing this quarter, we believe our portfolio of wireless communications and sensing AI technologies is unrivaled and leads the industry in terms of performance, power efficiency, and quality. Our new POEM family further expands our strength in AI to address the growing trend of deploying the incredible potential of generative AI to any device and application. With our technology leadership position and top-tier customer base and desire to grow and expand, we remain very optimistic about the long-term trends in our business and our ability to drive long-term shareholder value. Now, I will turn the call over to Yanni for the financials.