CEVA Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 14, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to the CEVA, Inc. 4th 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.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to CEVA's 4th Quarter and Full Year 2023 Earnings Conference Call. Joining me today are Amir Panush, Chief Executive Officer and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing the call 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 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 financial goals and guidance regarding future performance.

Speaker 1

CEVA assumes no obligation to update any forward looking statements or information, which speak as of the respective dates. In addition, following the divestment of the Intrinsics business to Cadence, Financial results from Intrinsics were transitioned to a discontinued operation beginning in the Q3 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 in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website. With that said, I'd now 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.

Speaker 1

Amir?

Speaker 2

Thank you,

Speaker 3

Richard, and good morning, everyone, and thank you for joining us today. 2023 was the beginning of a transformational journey for CEVA, and I'm very pleased with the progress we made in my 1st year with the company. Following the recent in-depth strategic review to really understand our strength and technology leadership, we have positioned CEVA a trusted partner for semiconductor companies and OEMs who need our IP to enable 3 fundamental use cases for smart edge devices, the abilities to connect, send and infer data more reliably and efficiently. We have realigned our business to focus our investments and R and 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 the 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.

Speaker 3

Our customer engagements our deeper across the value chain, across our entire technology portfolio and expanding into new end markets and strategic opportunities. I will provide a review of the year shortly, but before that, I will review the Q4. For the Q4, our total revenues were in line with our expectations. I'm 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 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 remain solid.

Speaker 3

We saw good progress on a number of fronts, including a strategic license deal with a U. S.-based MCU leader for our Wi Fi IP and a licensing deal with 1 of our major automotive customers to integrate our AI software compiler into their ADAS chips. In royalties, we saw a return to a year over year growth for the first time since Q3 2022. We have a rebound in mobile and across consumer IoT and industrial IoT, where we have a large and diversified customer base. Both mobile and IoT markets produced our strongest royalty revenues of the year.

Speaker 3

Units volume in the quarter were up 21 from the Q4 2022 level. Overall in licensing, we signed 17 deals in the quarter, 11 of which where 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 5 gs Redcap signed in the quarter. As more and more chips designs integrate connectivity as a mandatory requirement. As I mentioned a few months ago, One of the deals was a leading U.

Speaker 3

S. 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 and D teams and major investments around wireless connectivity need help to advance their product roadmaps and stay competitive. EVA is constantly at the leading edge with the latest standards developed in the same time frame as the market leaders.

Speaker 3

As these technologies become more complex and the demand 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 the product development goals, while reducing the 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 6 deals signed, highlighted by a licensing deal with 1 of our major automotive customers to integrate our AI software compiler into their ADAS chips. This customer has already licensed and deployed our AI engine to add high compute performance in their automotive systems on chip product family targeting ADAS and autonomous driving. These SoCs are now in production and are expected to be deployed in mass market vehicle by the end of 2024.

Speaker 3

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 the proprietary AI software algorithms and allow them to bring value add functionality and differentiation to the performance of the production vehicle. This is an important milestone for our customers and for CEVA As the automotive industry is constantly looking for open ADAS architectures as an alternative to closed vertical solution 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.

Speaker 3

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 now to royalties for the quarter.

Speaker 3

We saw a strong recovery in mobile, driven by restocking demand for Android smartphones in emerging markets. In consumer IoT and the board industrial IoT markets, demonstrating our diversified offering and customer base, We recorded our best quarter of the year with notable trends for our connectivity customers. This was our 3rd consecutive quarter of royalty growth as we build momentum throughout the year. More significantly, this was the Q1 to surpass $12,000,000 in royalty 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 CAD 97,400,000 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.

Speaker 3

Licensing and related revenue was $57,600,000 down 23%. We signed 53 licensing agreements across our expansive IP portfolio. 10 of those deals were with OEMs who are integrating our IPs into their end products. In terms of end markets, 29 of these deals target consumer and 23 for industrial IoT, including 7 for automotive and one for other markets. This deal breakdown services another indicator of our focus on the end markets with the largest licensing base and the greatest projected growth potential.

Speaker 3

In full year royalties, despite the slow start to the year and the soft end market throughout 2023, Royalty grew sequentially each quarter throughout the year to reach $39,800,000 down 12% year over year. The decline is mainly attributed to mobile and 5 gs 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 product, royalty revenues related to our Bluetooth, WiFi and cellular IoT business lines combined to grow 5% year over year, mainly due to the higher royalty rate contribution from our new WiFi 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 continuing 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.

Speaker 3

Looking back on the year, in terms of achievements and milestones, 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 diverse the Intrinsics Aerospace and Defense Design Services Business. In line with this strategy, in April, we acquired VISASONICS, A small special audio software business, which bolsters our software business and enable us to address the high volume headsets and earbuds space We value add software. This culminated with our first special audio deal with both India number 1 wearables and hearables OEM and number 2 worldwide behind only Apple.

Speaker 3

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 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 Investors and Analyst Day in December, where we shared our vision and strategy for the company

Operator

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.

Speaker 3

Let me continue from where I think we are you stopped hearing us. So in terms of new product launches, We had multiple achievements. For connectivity, we launched our most powerful DSP architecture to date, addressing 5 gs advanced use cases for infrastructure, industrial, mobile and new use cases like 5 gs satellite communication and 5 gs vehicle to everything. Our UWB radar platform for automotive child present detection and our Bluetooth solution for electronic shelf labels and emerging high volume markets. For sensing, We launched our channel sounding Bluetooth solution, enabling high accuracy, secure positioning for automotive, industrial and IoT.

Speaker 3

For Inference, we launched our scalable NPU AI architecture capable of running generative AI in Smart Edge devices with industry leading efficiency. All of these product introductions demonstrate our commitment to the Smart Edge and our diversified IP portfolio position and has been very well received by our customer base. Moreover, these products will serve our licensing business in 2024, along with recent product introductions like our Wi Fi 7 IP. Overall, looking across our corporate, product, customer and end markets milestones in 2023. I'm extremely proud of what we have achieved, and I'm excited about what's ahead for 2024 and beyond.

Speaker 3

None of this would have been possible without the dedication, patience and incredible efforts of our employees worldwide, And I would like to take this opportunity to thanks them. Looking ahead into 2024 and our expectation, The Semiconductor Industry Association expect the global semiconductor industry to return to healthier growth following a week 2023. Still remains, however, some short term challenging conditions in the industrial and automotive end markets, which are not expected to clear until the second half of and possible inventory buildup that will need to be walked down in the 1st part of the year. Yaniv will provide quantitative guidance shortly. Finally, I want to sincerely wish you and your families a successful and peaceful 2024.

Speaker 3

I look forward to meeting many of you at conferences, trade shows and other industry events throughout the year. Now I will turn the call over to Yaniv for the financials.

Speaker 2

Thank you, Amir. I will now start by reviewing the results of our for the Q4 of 2023. Revenue for the Q4 was $24,200,000 as compared to $30,300,000 for the same quarter last year. Revenue breakdown is as follows: Licensing and related revenues were $11,800,000 reflecting 49% of our total revenue as compared to $19,400,000 in the Q4 of 2022. Royalty revenue was $12,300,000 reflecting 51% of total revenues, up 13% from $10,900,000 in the same quarter last year.

Speaker 2

This is a return to year over year growth in royalties for the first time since Q3 of 2022. Quarterly gross margins came slightly better as expected on GAAP and in line with non GAAP basis. Gross margins were 91% on GAAP and 92% on non GAAP basis. Our total operating expense for the 4th quarter was in line with the mid range of our guidance at $24,700,000 Total non GAAP operating expenses for the 4th quarter excluding equity based compensation expenses, amortization, intangibles and deal costs were $20,300,000 at the lower end of our guidance. GAAP operating loss for the Q4 was $2,800,000 down from GAAP operating profit of $1,000,000 in the same quarter a year ago.

Speaker 2

Our GAAP taxes were $7,200,000 and Non GAAP taxes were $1,400,000 GAAP taxes expenses included $1,300,000 charges as a result of completion of a tax audit for prior years and the $4,500,000 tax charge, including a one time write off of the deferred tax asset related to Section 174 of the U. S. Tax code. GAAP net loss for the Q4 of 2023 was $8,100,000 and diluted loss per share was $0.34 as compared to net income of $4,500,000 and diluted income per share of $0.19 for the Q4 of 2022. Non GAAP net income and diluted EPS for the 4th quarter or of 2023 were $2,400,000 and $0.10 respectively as compared to $7,000,000 and $0.29 reported for the same quarter last year.

Speaker 2

With respect to other related data, booked units by CEVA licensees during the Q4 of 2023 were 453,000,000 units, up 21% from the Q4 of 2022. Of the 453,000,000 units reported, 101,000,000 units or 22% were attributed to mobile handset modems. 325,000,000 units were for consumer IoT products, up from 286,000,000 units in Q4 of 2022. 27,000,000 units were for Industrial IoT products, up from 21,000,000 a year ago. Bluetooth shipments were 244,000,000 Units in the quarter, up 11% year over year.

Speaker 2

Cellular IoT shipments were a quarterly record high with 45,000,000 units, up 82% year over year. WiFi shipments were 31,000,000 units, down 17% year over year. However, Wi Fi royalties were up 86% year over year, reflecting the higher per unit royalty we get for Wi Fi 6 shipments versus older generation of Wi Fi standards. As for the year, our total units shipped were 1,600,000,000 units in 2023, down slightly for $1,700,000,000 in 2022, which estimate which equates to approximately 50 CEVA powered devices sold every second in 2023. Annual mobile modem shipments were down 13 year over year to 286,000,000 units, reflecting the soft smartphone market in 2023, Particularly in the first part of the year, annual consumer IoT related shipments were 1,250,000,000 units, down just 4% year over year.

Speaker 2

And our annual IoT related industrial IoT related shipments were 84,000,000 units, up 17% year over year. Cellular IoT and Audio AI DSP shipments Both experienced growth in 2023, up 64% and 56%, respectively, from 2022. In terms of royalty contribution highlights, cellular IoT royalty revenue were at all time record high, up 47% year over year. Audio, AI, DSP royalty were up 111% year over year and Wi Fi royalty revenue were up 40% year over year. As of for the balance sheet items, as of December 31, 2023, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were $166,000,000 In 2023, we purchased approximately 279,000 shares for approximately $6,200,000 And As of today, we have around 700,000 shares that are available for repurchase under the repurchase program has expanded back in November of 2023.

Speaker 2

Our DSOs for the Q4 of last year continued to be lower than the norm at 32 days similar to the prior quarter. During the Q4, we generated 5 $5,000,000 cash from operating activities, our ongoing depreciation and amortizations were $1,000,000 and purchase fixed asset was $800,000 At the end of the Q4, our headcount was 424 people, of whom 350 were engineers. Now for the guidance. As we recently presented and shared in our December 23 Analyst Day, CEVA's long term vision is to achieve a 4 year revenue growth of 8% to 12% CAGR. This will enable and generate significant earnings power, operating leverage and net income growth.

Speaker 2

Amir highlighted earlier our key 2023 achievements and our new focus on pure IP play, and we are executing this plan one step at a time to address these three pillars of connect, SENSE and Infer. Our licensing and related revenue business will continue to expand into new markets and use cases in the industrial IoT and consumer IoT, offering connectivity platform, AI solutions, including AI engines, NPUs and software, audio AI and more. On royalties, we expect our connectivity products to continue to show strength in 2024 with the royalty revenue related to our Bluetooth, Wi Fi and Cellular IoT business lines to grow. Smartphones have their seasonality trends and known headwinds. The consumer IoT and industrial IoT markets are large, diversified and present us with solid platform for long term growth.

Speaker 2

On an annual basis, our revenue is expected to grow 4% to 8% over 2023 with lower growth in the first half of the year and higher in the second half. The expense side, as we discussed, We implemented cost control measures to plan and keep our 2023 overall expenses, including both cost of revenues and OpEx flattish at a range of $93,000,000 to $96,000,000 non GAAP. On the non GAAP, overall non GAAP COGS expense is expected to decrease Approximately $1,500,000 year over year and our non GAAP OpEx is expected to increase of approximately $2,000,000 year over year. Specifically for the Q1 of 2024, With typical seasonality in shipments of consumer IoT and mobile products Post the holiday season, we expect overall revenues to be 2% to 6% lower sequentially and with a different mix of licensing and royalty revenues than from the quarter we just reported. Gross margin is expected to be approximately 91% on GAAP basis and 92% on non GAAP basis, excluding an aggregate $200,000 of equity based compensation expenses and $100,000 of amortization of acquired intangibles.

Speaker 2

Our GAAP OpEx for the Q1 of expected to be in the range of $24,500,000 to $25,500,000 Of the anticipated total operating expenses for the Q1, $4,000,000 is expected to be attributed to equity based compensation expenses, dollars 200,000 for of acquired intangibles. Therefore, our non GAAP OpEx is expected to be in the range of $20,300,000 to $21,300,000 Net interest income is expected to be approximately $1,400,000 Taxes for the Q1 is expected to be approximately $1,200,000 and share count for the first is expected to be approximately 25,300,000 shares. And we could now open the Q and A session, please. Betsy?

Operator

We will now begin the question and answer session. The first question today comes from Suji Desilva with ROTH MKM. Please go ahead.

Speaker 4

Hi, Yaniv. I'm going to have to look at the progress here. Maybe to talk about the guidance and the Q1 and the full year. Curious what you talked about the different mix you need in the decline 2% to 6%. Curious what the license royalty implications are there.

Speaker 4

And then for the quarter and the full year, what are the expectations for mobile, maybe even for the full year versus non mobile would be helpful to understand some color there.

Speaker 2

Sure. Good morning. So Overall, we're talking about 4% to 8% annual revenue growth for 2023. We're looking at Similar start that we had in 2023 that the first half may be a bit more milder, 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.

Speaker 2

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, up front fee, but a much, much higher royalty contribution. And the immediate effect on an annual base, for example, our audio and AI royalties more than double in dollars year over year, but they don't necessarily contribute to licensing.

Speaker 2

So when you 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.

Speaker 2

That is the plan. A lot of moving pieces, but from the product portfolio and the revenue mix, these are sort of the high Piece of the puzzle.

Speaker 3

And maybe I can add a little bit more color here, Suji. First, good morning to everyone. And 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 talk 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.

Speaker 3

As well as I would say overall our customer base in the consumer IoT and industrial IoT on average are doing quite well, and we expect that to be a good tailwind and a strong for us to grow the royalty moving forward. On the more so called muted side, it's really the situation with the all 5 gs installment base. And that's a market that's 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 in terms of 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 as well as the new AI products that's right now in significant evaluation across multiple potential customers, And we expect to be able to close some of those deals in 2024.

Speaker 4

Okay, great. And then my other question is on the Auto ADAS win. Congrats on that. I just want to understand the circumstances for that win. Was that a customer who had their own AI and they Swapped it out for yours, what kind of tops?

Speaker 4

And you talked about 7 auto wins. I'm curious if those are all ADAS AI or a variety of products?

Speaker 2

Let's start with the first. So the first thing is an existing customer. They licensed our technology, the hardware side of it A while back and built their own chip, the nice part, the interesting part for them is that the chip is programmable. The deal that we closed now was to add software capabilities that also their customers could add different sources of AI use cases and program the final product to be much more flexible. So it's an existing customer It is going into production this year.

Speaker 2

They added the software piece on top of the hardware solution that is ready now. And it was a very interesting and nice achievement that they are coming back and offering this type of solution in cars today this year. Overall, Amir, you want to talk about the overall

Speaker 3

Yes. The other 7 deals are not AI only. It's across our product portfolio. Overall, we signed, I believe, 4 AI deals this quarter, 3 of them related, let's call it, more to Vision AI capabilities in ADOS and one related to audio AI capabilities.

Speaker 2

Okay. Thanks guys. You're welcome. Thank you. The

Operator

next question comes from Kevin Cassidy with Rosenblatt Securities.

Speaker 4

Congratulations on the good quarter.

Speaker 3

Can you Thanks.

Speaker 4

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 seeing?

Speaker 3

Yes, Kevin. A few things I would say. 1st, if we take a step back and look at 2023 overall, Definitely, that was a year that started with lots of inventory correction that our customer need to go through with that, So call 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's definitely drove some of the delays in 2023.

Speaker 3

Specifically for Q4, we are actually very encouraged by 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 categories. 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 the growth between 2023 2024.

Speaker 3

Overall, I would say, if we look at the different market segments, automotive and industrials are a little bit weaker in the first half, and we expect correction and overall interest to go back in second half. Consumer IoT and consumer overall is holding up very nicely for us. And that's we expect it to be with some 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.

Speaker 2

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.

Speaker 4

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

Speaker 2

Yes. Go ahead. Yes. So, silane is still an important and big geography for us. A lot of Innovation and existing and repeating customers that come back for newer generations of different technologies, whether it's the Bluetooth or Wi Fi or other connectivity solutions that we have today because I think that we have a Very strong portfolio around that.

Speaker 2

What was very interesting for us this quarter around is that the U. S. Was stronger than usual for us and a very, very strategic deal with an MCU player that we mentioned earlier in Namir's prepared remark and that was a positive change for Q4 revenue mix. It wasn't just China, but here was an interesting Development in the U. S.

Speaker 4

Great. Okay. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 5

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

Speaker 2

Great question, Mark, and thanks for that. So let's repeat some of the highlights that we ended up 2023. Not a simple year for us and more of a transition year. If we still look and do the analysis now at the end of the year, Here is how it looks like. On the Audio AI front, the royalty, let's start with royalties, more than doubled for us.

Speaker 2

We showed growth both in units, 56%, I believe we said, and revenue was up more than 100 Look at the cellular IoT, which is one of the top markets that we have continued to Show separately from the modem and the Bluetooth and Wi Fi, this was the 3rd element that we started breaking down Maybe a year or so or 2 years ago, units were up 64%, revenues were up 47%, almost 50% cellular IoT, so that has been working well. Bluetooth sort of flattish year over year, mainly because of this lower start of 2023. So we are flattish in revenues, which is we're above our units, which were about 1,000,000,000 units. If you recall last year, we're very close to that, but slightly lower. And Wi Fi continues to be one of the strongest Royalty contributors, both licensing and VAD royalties, the units were down year over year because it was a transition year also to Wi Fi 6, which is a newer technology and the new generation.

Speaker 2

But because of having a new product and new customers that got in, the ASP is much, much higher. And we reached 40% higher revenues for Wi Fi royalty in 2023. So 4 very or 3 very strong royalty contributors, that should continue in 20 24, we don't know the pace, we don't know when it's going to pick up and what, but we know that the industrial is very strong and all of these different connectivity solutions are addressed to that as much as consumer side. The lowlights, as Amir mentioned, is mainly the mobile, which started very low, but ramped up and corrected itself. They're yet to be seen how 2024 looks like on an annual basis.

Speaker 2

It's difficult to forecast. But for now, that's not one of our growth drivers. And the base station market, we've suffered Justebe, but overall was very muted and lower in 2023 just because 5 gs didn't bring for the cellular networks any key or star use case that will that happened with deployment or increased deployment. So that's probably going to be muted also in 2024, the rest of the technologies and the markets that we target around Edge AI should work out well.

Speaker 3

Maybe just other comment to that Martin related to the industrial IoT. I would say overall, we finished this year with 20 3% of our total revenue. 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 technology 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 offering, to Wi Fi more recently and now also to some audio capabilities.

Speaker 3

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 Marketspace.

Speaker 5

Thank you very much. Next question Mobile, in the longer term, maybe 2 to 3 years time horizon, do you think mobile could recover back to the 2021 level? Or what should we look at? How should we look at mobile in the longer term in terms of the amount contribution your company?

Speaker 2

The mobile market, as everybody knows, has consolidated significantly over the last couple years, there is a handful of players in that industry. The biggest and well known ones are the Qualcomm and the MediaTek There are a few very successful for many years lower cost Solutions like Unistock and in recent years ASR as well, there are still very big markets In the world, replacement and new markets for low cost future phone, not everybody goes and buys a $1,000 high end phone, those markets we have very strong penetration and solutions, so that could continue. The pace of all that is not that clear. Handsets haven't been that exciting of a market or a use case in recent years. And there is one other OEM that may change its modem course and maybe things will look different in 2 to 3 years.

Speaker 2

Yet to be seen, no, I don't think anybody has their answer for that piece. The other use cases The 5 gs and connectivity have gone into other segments in other markets and there we have seen licensing activity over the last 2 to 3 years and royalties should also come from that, not the handset market per se, but and now lots of other solutions that could use 5 gs. Hopefully, that helps to answer the question. Right now, the last 3 or 4 years, if we look to the slide we presented also in the Analyst Day, You could see that the overall revenue of CEVA in the last 5 years doubled from Just shy of $50,000,000 to more than double $100,000,000 coming from edge smart AI edge Devices versus the mobile devices. So mobile is still there, but the big growth has come from the newer markets that we've added on.

Speaker 3

Yes. And just More specifically on that margin, specifically on cellular IoT that is extension of the 5 gs mobile, that's where we have seen already this year very growth both in consumer, industrial consumer more in smart, smart watches and those type of things where 5 gs or other types So our technology is getting more and more embedded. And in the industrial space also for all the different type of logistic 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 different type of satellite type of use cases where 5 gs, 5 gs advance will also propagate. And we believe it can create for us a nice growth trajectory moving forward.

Speaker 5

Got it. Great color. Thank you. That's

Operator

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

Speaker 6

Yes. Hi. Thanks for taking my question and congratulations on the strong results. I wanted to ask about your long term guidance around operating margin. I think At the conference recently, you gave a target of 20% operating margin.

Speaker 6

I'm just wondering, I realize it's a long term target, but I'm just wondering what How you what's the constellation what's the makeup of actually getting there? Does that consist of increasing expanding gross margins or is that specifically

Speaker 4

no

Speaker 6

expansion whatsoever. I'm just wondering what the moving parts around that are till you get to that number?

Speaker 2

Deep magic, that's the way how we do it. It goes to us one step at a time With much more focus and this is what the Amir undertook last year and we have shared with you over the In the prepared remarks, if you look at the overall non GAAP operating margin of the year, we ended up with about 4%. It was stronger in the second half, 7%, 8% in Q3 and Q4. And when we look into 2024, based on the guidance that we gave, we are planning to probably double it, maybe slightly do even better than doubling it for 24. So that's one milestone if you reach the revenue level that we talked about, if we our R and D plans and focus on the expense with the right expense levels that we have talked about, that's what that milestone will get you to.

Speaker 2

And if that continues over a few years, that's how we could and with more royalties, which bear very high gross margins and fall the pretax line that could get us to the next milestone or few milestones, it's not going to happen overnight to take that Next stage to 20% non GAAP operating margin. So hopefully that gives a little bit more color On the time line.

Speaker 3

Maybe just to add on that, just from the top level strategic view of that. So first, this year, when we or sorry, last year, 2023, we came back to a POIP business model after the divestment of Intrinsics. And with that, we guided we will be 90 percent or above gross margin. And so that's on the gross margin. On the operating margin, it's really twofold.

Speaker 3

1 is Continuous improvement and growth in our top line for the guidance we just gave for this year and from that on the long term model that we gave in the Analyst Day. And then on the OpEx side, it's really maintaining strong focus on where we see and where we believe we will see a long term cost potential. One example of that is also the acquisition that we did last year of Vision Sonic for 3 d specialty or software capabilities. And very quickly, we'll be able convert it into licensing agreements and royalty bearing with the customer, which overall has been very synergistic on the OpEx side and with that bringing a very good profitability moving forward to our business. So both organically and non organically, we are heavily focusing on the bottom line of how we can drive that synergy as well as the operational margin leverage as we move forward.

Speaker 6

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

Speaker 2

Thank you.

Operator

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

Speaker 7

Yes. Good morning or afternoon.

Speaker 5

I just want to make sure

Speaker 7

I understand the revenue guidance for the full year. Does the Comp include intrinsic revenue or is it just continuing ops in terms of the growth expectation?

Speaker 2

No, no, continuing it's just the CEVA IP part of it. Intrinsics, we took that out for last This continued operation is not in your top line, it's not in your expense, it's just in the GAAP one line before the end of discontinued operation. So it's not included in numbers, the numbers, the revenue overall net revenue numbers for last year were 97.4%, and that is the basis for the growth in the percentages that we gave.

Operator

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

Speaker 3

Great. Good morning, afternoon, gentlemen, and thanks for taking my questions. Just one or two from my side. Maybe, Amir, Firstly, one for you. Given the excitement that we're hearing around the AI PC and the AI smartphone, Just wondering with your strong positioning at the edge and around IoT devices, do you think there is a wave of edge AI licensing that's in front of you, that's yet to happen and you just haven't kind of seen that yet?

Speaker 3

That's my first question. And then maybe for Yaniv, just on the model again for that 6% sales growth for 2024, Can you rank for us kind of licensing versus royalties, which is higher or lower than that 6% just to get an idea of the trend there? And also, do you expect to grow revenues on a quarterly basis through 2024?

Speaker 4

Thanks guys.

Speaker 3

Good day. I'll take the first one and good morning. Can you repeat the question, David? Sorry for that. Yes, sure.

Speaker 3

So just with the excitement around the AITC and At the Edge, I'm just thinking, is there a way of licensing at the Edge is yet to happen? Because you talked in your opening comments that kind of licensing is a bit lumpy. So I'm just trying to put that in context with all the what we're hearing around AI. Yes. So yes, definitely, David.

Speaker 3

So first, this is a focus area for us in 2024, delivering our NPU and overall AI portfolio into the Smart Edge market segments, including automotive, industrial, the consumer IoT, later also into the infrastructure. We have already several customers that are evaluating our technology in very deep evaluation, and we expect to be able to close some of those deals during 2024. That's definitely part of our target and also part of our expectation in terms of the revenue growth in 2024.

Speaker 2

And with regards to the model, we don't break out. We never did, again, because we don't have that crystal ball and royalties and volumes Between licensing and royalties on an annual basis, we believe both could grow year over year. So again, if you look at the numbers, Excluding intrinsic that I was we were just asked about $57,600,000 is the licensing and related revenue basis From 2023, we believe it could it should go higher and be higher in 2024. And the $39,900,000 of royalties, which suffered year over year mainly because of the base station market that we talked about earlier should also be the basis for the growth. Not sure where it's going to end up.

Speaker 2

Both we have them growing. Our model shows incremental growth on the overall Quarter by quarter as the year progresses with Q1 being the lowest because of the seasonality of the modem and Consumer devices in royalties here, we have a little bit more insight because we have seen that trend in recent years. And I hope I answered the question. That's the high level of how we see the model for next year.

Speaker 3

Yes, that's very clear. Thanks guys.

Speaker 2

Thank you.

Operator

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

Speaker 1

Thank you, Betsy. And thank you everyone for joining 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 ks 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 26 to 29 in Barcelona, Spain the Loop Capital Markets 5th Annual Investor Conference March 12th in New York the 36th Annual ROTH Conference March 18 2019 in Dana Point, California and the Mizuho Americas Israel Growth Conference March 25 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.

Speaker 1

Thank you all and goodbye.

Operator

The conference has now concluded.

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Earnings Conference Call
CEVA Q4 2023
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