CEVA, Inc.

After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor, and Public Relations. Please go ahead.

Thank you, Jason. Good morning, everyone, and welcome to SEVA's first quarter 2024 earnings conference call. Joining me today on the call are Amir Panoush, Chief Executive Officer, and Yaniv Ariely, Chief Financial Officer of SEVA. Before handing over to Amir, I would like to remind everyone 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 about our market positioning, strategy and growth opportunities, market trends and dynamics, SEVA's ability to execute on backlogged deals in the second quarter and to reach total revenue target for the year, expectations regarding demand for and benefits of our technologies, and our expectations and financial goals and guidance regarding future performance. SIVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. In addition, following the divestment of the intrinsics business, financial results from intrinsics were transitioned to a discontinued operation 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 filing section of our investor relations website at investors.ceva-ip.com. 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. Good morning, everyone, and thank you for joining us today. SIVA delivered first quarter results that reflected solid royalty trends with good year-over-year growth, while licensing was lower than we anticipated. Some deals we expected to close in the first quarter were delayed. I continue to be very encouraged by our diversified licensing pipeline and stronger backlog. We closed a significant multi-million dollar deal with a strategic customer in the beginning of the second quarter and there is strong demand for our next generation IPs that are currently in development and are being licensed by early adopters who are looking to gain an advantage in the market. I will elaborate more on our expectations for our licensing business for the rest of the year shortly. First, looking at the licensing business we concluded in the quarter in more detail, we continue to expand our leadership in Smart Edge IP, completing 11 licensing deals across all of our key target markets, namely consumer, automotive, industrial, and infrastructure. These deals range from Bluetooth connectivity for wearables and IoT, 5G for RedCap and cellular V2X, Wi-Fi for access points, UWB for consumer devices, and audio for smartphones. Most significantly in the quarter, I'm very pleased to report that we signed deals for our next generation Bluetooth 6 and Wi-Fi 7 IPs. Design activity around our Wi-Fi 7 IP is experiencing strong traction with both new and established wireless players and represents a positive catalyst of our licensing activities in 2024 and beyond. In the quarter, we're concluding a Wi-Fi deal with a strategic customer who is already in mass production with a combo chip based on our Wi-Fi 6 and Bluetooth 5 IPs. This customer has managed to successfully compete with the largest incumbents in the wireless combo chip space for consumer, enterprise, and automotive, and is now beginning to design their next generation Wi-Fi 7 chips to gain further market traction for the board consumer devices that will require Wi-Fi 7 connectivity, including smartphone, tablets, laptops, wearables, and smart home devices. In terms of market size, ABI research forecast that Wi-Fi 7 chipset shipments will exceed 1.7 billion units annually by 2028. As we have stated previously, due to its technical complexity, our Wi-Fi 7 IP commands a higher license fee and royalty rate than previous generations of Wi-Fi, which in turn drives ASP growth and enable us to drive more value per customer. Moreover, the large market size entices new entrants to the Wi-Fi market, while the complexity of the technology possesses challenges to many of the existing wireless players to develop this technology internally. As the only IP company in the market today offering licensable Wi-Fi 7 technology and the ability to license it together with our Bluetooth and UWB technologies, we are in an excellent position to repeat our success in the Wi-Fi 6 market for Wi-Fi 7. In Bluetooth, we have added a new Bluetooth 6 customer in the quarter, who is a first-time customer for SIVA and a world leader in wireless audio. these customers decide to take advantage of our IP to accelerate their product development for the next generation of Bluetooth audio. Although the Bluetooth 6.0 standard is not yet ratified, we are among a small number of leaders and the sole IP licensing company that has the expertise and skills to develop next-generation wireless technologies ahead of the market and ahead of the standard itself. We have successfully achieved this for a number of generations of both Bluetooth and Wi-Fi standards, and have built an unrivaled position as the industry leader and trusted partner for wireless IP over many years. We have more than 100 customers and billions of devices shipped. Finally, on licensing, in relationship to the licensing pipeline for the remainder of the year and our ability to extract more revenue per deal, I would like to share a few thoughts and data points. SIVA is one of the few select companies that have the technical capabilities talent, and unique know-how to develop wireless sensing and edge AI IP to the level required by most demanding customers. I firmly believe that we can command higher licensing fee and royalties for our leading edge products, and many of our ongoing customer discussions reinforce this belief. While a few deals that we had anticipated closing in the first quarter were delayed to later quarters, those deals remain in our sales pipeline and some have already been signed since the first quarter. Our value proposition around the three major smart edge use cases, Connect, Sense, and Infer, is clear and well understood by our customers and partners. In addition, we have already closed a meaningful multi-million dollar deal in the second quarter with a strategic customer for next generation IP that we are currently developing. I will update you more on this deal in the next earning call. but wanted to share that this deal reinforces our strategy to extract higher value for our technology due to our unrivaled technical leadership and the ROI gains that can be achieved when partnering with us. We believe this, in turn, will serve to increase shareholder value through higher revenues, margins, and profits over time. We are laser-focused on this value-add strategy, leveraging our strong board portfolio SmartEdge IP offerings. Turning now to royalties, we are pleased with our start of the year with a robust quarter, showing an impressive 33% revenue growth year-over-year and just a 14% seasonal sequential decline compared to a 28% sequential decline a year ago. We saw shipments volume up 25% year-over-year, an increase in every end market we serve, as restocking continued across the board IoT markets. Smartphone units, while up year over year, were done quite sharply from the fourth quarter, a similar trend to what we saw last year. Also, the infrastructure market remains soft, reflecting low capex for 5G networks globally. From conversation with our customers, we expect smartphones to improve in the second quarter and throughout the year. Overall, the first quarter shipments increase our confidence, that we are well positioned to grow our royalty business in 2024, augmented during the year by new customer ramps deploying our portfolio of wireless IPs for consumer and industrial devices, and our embedded application software for special audio in the headphones and sensor fusion software for intelligence robots. Now, some commentary regarding developments in the quarter. In the first quarter, we also invested further in cementing our market leadership, expanding our product offering, and strengthening our ecosystem. We announced a new UWB wireless IP for consumer devices, one that builds on our success in UWB solution for automotive, and which we already licensed successfully to a customer this quarter. UWB is primed for takeoff in the consumer market. as the majority of smart phone OEM are now integrating this technology into their latest devices, which is a precursor to mass market deployment in endpoint devices. ABI research forecasts that the global market of UWB-enabled device shipments will grow at a compound annual growth rate of 14% over the next five years, from 435 million units in 2023 to nearly 1.3 billion units by 2028. we are ideally positioned to leverage this market opportunity as it develops, already having a mature IP available for licensing and the ability to license it integrated with our Bluetooth Low Energy IP. In terms of our ecosystem, we announced a new partnership with ARM targeting 5G advanced infrastructure and non-terrestrial networks, NTN, aimed at lowering the barriers to entry for developing products targeting these two large markets. NTN, or satellite communication, is a hotbed of innovation these days, and together with ARM, we can deliver the processing power required by satellite companies and new entrants to bring 5G advanced networks to orbit, enabling the promise of global broadband connectivity and a host of new use cases on Earth that can leverage truly ubiquitous connectivity. We continue to gain market share in wireless connectivity with an unrivaled portfolio of wireless IP, spanning the most common startups like Bluetooth, Wi-Fi, and 5G, through to emerging startups like UWB and Matter. Connectivity is no longer considered a feature for electronic devices. Moreover, it's a very foundation of innovation that allows AI to be deployed and accessed by edge devices. Without connectivity, there is no AI. We're incredibly part of our central role in the industry, enabling the connectivity in more than 1 billion devices annually, that allows them to interact with AI and improve our daily lives. On sensing and inference, we continue to experience strong demand for our software and hardware products targeting these use cases. Our generative AI NPU scalable IP portfolio with market-leading performance is undergoing intense evaluation with a number of customers that we have identified as strategic design partners for this technology, and we will update you as this deal comes to fruition. Our embedded application software, particularly around spatial audio, is also experiencing significant traction, and we reach an important milestone in this quarter. We have the first headset integrating our wheel space spatial audio and head tracking software going on sale to the public. The Nirvana Utopia headphones from India's number one wearables and hearable OEM boat also features our Bluetooth and audio AIDSP, making this product a perfect illustration of our connect, sense, and infer strategy, where we can provide multiple IPs to a single product and work directly with the OEM to bring the product to market. Overall, we are very excited about our product lineup targeting smart edge devices. Our dialogue with customers is very open, and we understand the recurring pain points that our customers share with us when discussing their smart edge roadmaps. With AI set to transform every industry and technology, Semiconductors and OEMs need to define their strategies, not just to deal with the inference workload, but also how to connect their devices and enable them with the ability to use sensors for voice, sounds, vision, and motion. Without these three use cases being addressed in every smart edge device, from smart MCUs all the way to autonomous vehicle and 6G virtual RAN equipment, companies will not be able to compete in the smart edge era. We are ideally positioned to fill the knowledge and R&D gaps at companies that lack the ability to excel in all of these areas. Our portfolio of IP for Connect, Sense, and Infra use cases is highly synergetic with a broad range of semi and OEM customers across multiple industries, including the high-volume MCU players, where we already have significant traction for our connectivity IPs, and the TWS and wireless headphone markets, where we estimate our Bluetooth customers to have between 45% and 50% market share today, excluding Apple products. We intend to fully exploit our leadership in wireless connectivity to offer additional IP for Sense and Infer as the use cases for smart edge devices grow, driving larger licensing deals and higher royalty fees per unit. In summary, we have begun 2024 with royalty-bearing shipments up across all the end markets we serve, and we have a solid pipeline of new customers set to reach production as the year progresses.