CEVA Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 13, 2025
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Operator

Good day, and welcome to the CEVA Fourth Quarter and Year End twenty twenty four Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded.

Operator

I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor and Public Relations. Please go ahead, sir.

Richard Kingston
Richard Kingston
Vice President of Market Intelligence, Investor & Public Relations at CEVA

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's fourth quarter and full year twenty twenty four earnings conference call. Joining me today on the call are Amir Panouch, Chief Executive Officer and Yaniv Ariely, Chief Financial Officer of CEVA. 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 CEVA to differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include statements regarding our strategy and growth opportunities market positioning, trends and dynamics, including the impacts of the AI super cycle recent advances related to LLM, Large Language Model Efficiency and the shift from AI inference processing in the cloud to the edge expectations regarding demand for and benefits of our technologies and revenues from long term strategic engagements with industry leaders, our sales pipeline and backlog and our financial goals and guidance regarding future performance.

Richard Kingston
Richard Kingston
Vice President of Market Intelligence, Investor & Public Relations at CEVA

CEVA 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 twenty twenty three 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 filings section of our Investor Relations website at investors.cevaip.com. With that said, I'd like to turn the call over now to Amir, who will review our business and performance for the quarter and the year and provide some insights into our ongoing business and for 2025.

Richard Kingston
Richard Kingston
Vice President of Market Intelligence, Investor & Public Relations at CEVA

Amir?

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Thank you, Richard. Welcome, everyone, and thank you for joining us today. 2024 was a transformative year for SINA, marking a year of exceptional execution, redundantly due to revenue growth, increased profitability and expanded market leadership for the Smart Edge. Our growth strategy, which we shared during our Investor Day at the end of twenty twenty three, position us to exceed our expectation for 2024, while keeping us strategically focused on our long term goals to maximize shareholder value. Our core strategy of partnering closely with our customers to solve their most critical technology challenges through a comprehensive best in class portfolio of IP platforms continues to drive our growth.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

By enabling smart edge devices to connect, send and infer data at the edge, we are delivering impactful solutions that drive success for both our partners and our business. In 2024, we have strengthened our leadership and influence around our key technology pillars, reinforcing our dominant position in wireless connectivity, while expanding our sense and influence product offerings and global customer base. Our large highly diversified customer base spans across multiple industries and end markets, creating multiple licensing growth engines and strong royalty tailwinds that are further enhanced by the expansions of AI across industries and everyday life. Before reviewing the year and our key achievements, I will first provide an overview of our fourth quarter performance. For the fourth quarter, I'm pleased to report another stronger quarter with both licensing and royalties combining to deliver 21% year on year revenue growth and exceeding market expectations.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

As we highlighted in recent earnings calls, our business momentum is fueled by the AI super cycle with significant investment shifting towards enabling AI inference processing at the edge. This trend perfectly intersects with our industry leading portfolio of IPs, which enable any edge device to connect wirelessly, sense its environments via vision, sound or motion and perform real time on device inference enabling faster and more efficient decision making at the edge. We believe that recent advancements related to large language model efficiency with significantly lower training and inference costs and reduced memory requirements will make AI more accessible, efficient and affordable, particularly at the edge. As L and M become smaller and less resource intensive, the shift from centralized cloud processing to on device AI will accelerate, unlocking new opportunities for real time edge based intelligence. In the quarter, we signed several key strategic licensing deals.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

The first deal to note is with a top tier global MCU company, which has signed a long term architecture licensing agreement for our Wi Fi platform. This partnership will enable our customer to offer end to end connectivity solutions across a wide range of IoT and industrial IoT applications. As the market for Wi Fi connectivity continues to grow, so does the complexity of the standards and the large number of products with different connectivity flavors that MCU companies need to integrate Wi Fi into. By standardizing on CEVA wave Wi Fi platform architecture, this customer will streamline their Wi Fi efforts and focus on their core key differentiators, while benefiting from our IP to deliver best in class connectivity solutions across their MCU portfolio, targeting multiple end markets. The second major strategic deal relates to the mobile market, where we're concluding a long term licensing agreement with a leading U.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

S. OEM to use our technology in their in house five gs model. We anticipate that this agreement will lead to significant market share expansion of our wireless communication IP. We expect this agreement to drive a meaningful long term royalty stream in the years to come. These types of long term strategic engagements with industry leaders serve as a cornerstone of our future growth.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

By aligning our IP portfolio and the product roadmap, we unlock more opportunities with our partners, create lasting relationships and improve our long term profitability. In addition to these two strategic connectivity deals, our AI products achieved key milestones this quarter, including signing important licensing agreements for our AI DSPs and NUPON Nano NPUs with a first time customer to accelerate their edge AI product roadmap and add new sensing related features and capabilities. Market interest and demand for our edge AI portfolio continue to accelerate, both from existing and new customers, looking to solve the challenge of adding AI to their smart edge products. Our unified NPU portfolio scales from the smallest, most power sensitive embedded use cases required in MCUs and consumer SoC up to the multi engine NPUs for CoPilot, ADAS and other high performance use cases, providing customers with a solution that addresses their specific needs. Feedback from our customers has been overwhelming quantity and we are very encouraged by the progress we are making on the edge AI front.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Other engagements in the quarter include a multi year Bluetooth extension with an existing mobile customer and multiple deals for our Wi Fi and Bluetooth six and seven platforms with customers in consumer and industrial end markets. We also signed a software licensing deal with an OEM for our motion engine sensor fusion software targeting mobile products and a wireless communication platform deal with a customer designing a cellular IoT chip. Overall, we completed 12 fields in the quarter, three of which were with first time customers and two of which were with OEMs. Now turning to royalties for the quarter. We continued our excellent momentum, delivering our strongest royalty quarter of the year and our fifth consecutive quarter of year over year royalty revenue growth.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

We also achieved an all time high in royalty shipments powering six twenty three million units in the quarter, the first time ever we have surpassed 600,000,000 units in a single quarter. These milestones achievements were driven by record high shipments of both our Wi Fi and Bluetooth IPs, with Wi Fi shipments growing 110% year over year and Bluetooth shipments up 41% year over year. Smartphone shipments were up healthy 27% year over year on the back of strong end market demand for low end four gs and five gs smartphone. And we saw a notable sequential and year over year increase in five gs WAN shipment from our main customers. Our shipments grew 94% year over year as smartwatches, wearables, fanbowers and speakers are adopting our AI DSPs for more powerful chips to deliver immersive experiences for consuming music, gaming, movies and other multimedia.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Likewise, in TVs and PCs, our Sensor Fusion customers' shipments grew sequentially and year over year to finish the year strong. Overall, this was our second highest quarter ever for royalty excluding mobile, reflecting the new royalty growth cycle that we have been highlighting in recent earnings calls. We are particularly pleased to have achieved this through strength across multiple end markets with multiple technologies and from a diverse array of customers. For the full year of 2024, we finished the year strong, delivering 10% top line growth, exceeding our expectations, reaching $106,900,000 Licensing and related revenue was $60,000,000 up 4% over 2023. We signed 43 licensing agreements in 2024 across our extensive IP portfolio.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

11 of those deals were with OEMs who are integrating our IPs into their end products. In terms of end markets, 21 of the deals target consumer markets and 19 for the industrial IoT with the remainder targeting mobile, including two with our Encore mobile customers that signed long term agreements in the fourth quarter. '12 of the customers licensed multiple technology from our portfolio, a clear indication that our strategy to offer a broad portfolio of IPs around Connect, Fence and Infer is synergistic with addressing multiple needs of our customers. In terms of full year royalties, we delivered strong year over year 18% revenue growth and shipped a record 2,000,000,000 CEVA powered units, marking the first time in our history to reach this milestone number. Shipments trends was across the globe with numerous records achieved.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

To highlight a few of these, we powered a record 1,100,000,000 Bluetooth devices, a record 179,000,000 WiFi devices, a record 170,000,000 cellular IoT devices, three forty million smartphones and 170,000,000 other Smart Edge devices powered by our DSPs, Air Accelerators and Sensor Fusion software. In terms of end markets, consumer IoT was 53% of annual royalties, followed by mobile at 32% and industrial IoT at 16%. Looking ahead into 2025, we anticipate that our Wi Fi royalties and shipments will continue to grow with a number of high volume Wi Fi six customers getting into production and ramping now. Similarly, we expect continued growth for our Bluetooth and cellular IoT shipments with additional customers coming to market and strengthening our dominant position in these markets. Also, on the back of signing a new long term licensing deals with our two main mobile customers, we expect the royalty contribution for mobile to grow year over year.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Now taking a step back and looking at CEVA in terms of business achievements and milestones, there are many these years, but I would like to highlight a few. In connectivity, we solidified our position as the outstanding leader in this domain in multiple areas. In five gs cellular, we completed several repeat long term deals with our end core customers in mobile and wireless infrastructure, securing our IP and solidifying our position in the roadmap for next generations of products. We broadened our five gs customer base in the satellites and terminal markets, while adding multiple new customers for five gs V2X, cellular IoT and mobile broadband use cases. This enables us to service a diverse customer base across multiple five gs related end markets with our unified platform.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

In the short range connectivity, we signed significant deals for our recently introduced next generation Bluetooth six and seven and Wi Fi seven platforms and established long term strategic relationships with multiple global and NCU leaders who are standardizing on our connectivity platforms for key areas of the core environment. We also launched Ziva Wave Links, a new family of multi protocol wireless solutions as we look to deliver more value to our customers who increasingly need combo solutions for their designs. This combo solution allows us to secure better deal economics and improved royalties. In sensing, we made significant progress with our Specialty embedded application software, reaching production in headsets and earbuds we bought and winning new business with a global smartphone OEM for multiple headsets and earbuds SKUs to be launched in 2025. Our sensing DSP also entered production in the automotive ADAS market with one of the world's leading automotive semiconductor companies towards the end of the year and our audio sound DSPs experienced strong year over year growth in wearables, home audio and wireless speakers, driven by increased demand for advanced audio pre and post processing.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

As special audio and other complex audio and voice cases continue to evolve, our solutions are playing a critical role in enabling these next generation user experiences. In inference, we introduced Nippon Nano, our new embedded AI NPU targeted at power constrained devices and already signed multiple deals with lead customers looking to integrate it into their next generation SoCs. Overall, 2024 was a pivotal year for HCI with strong end market demand pushing companies to rapidly adapt AI capabilities in their end products, accelerating a refresh cycle. AGI is highly synergistic with our connectivity and sensing offerings, which we believe will lead to significant increased interest and demand for our HAI portfolio from new and existing customers. These synergies are another strategy to drive larger deals with better economics for both licensing and royalties paving the way for revenue growth per deal in the years ahead.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

2024 was a landmark year for Siva. Our commitment to operational excellence and disciplined execution delivered exceptional results across many fronts. We hit major R and D milestones, launched multiple innovative products like the Nippon Nano AGI NPUs, all while doubling our non GAAP EPS compared to 2022 and creating shareholder value. The progress we have made sets a strong foundation for an exciting 2025 and beyond. Our success is a testament to the dedication, passion and incredible efforts of our employees worldwide, and I'm deeply grateful to each and every one of them for their contributions.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

As for 2025, the shift from AI inference processing in the cloud to the edge continues to generate unprecedented demand for smart edge devices, driven by the need for lower power consumption, reduced latency and cost savings required to make AI ubiquitous in everyday life. This shift is a pivotal growth driver for us. We are committing committed to maintaining our leadership in connectivity, ensuring that all devices are seamlessly connected and capable of handling multiple protocols. This connectivity is complemented by our Samsung DSPN software and AJI AI NPUs, all of which enable the smart edge. Not only are we leading the way with IPs aimed at democrat design AI at the edge, but all of our IPs are inherently low power based on our strong heritage of processors and connectivity technologies designed for battery powered devices.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

With almost 20,000,000,000 super powered devices shipped to date, the majority of which are battery powered, low power is in our DNA. We continue our focus on improving deal economics by delivering greater value to our customers through multi connect protocols, AI accelerators and software enhancements. Our apologies to offer complete IP solutions rather than just individual components, ensuring that our customers receive integrated high value offerings that drive their success and ours. By enabling the smart edge ecosystem, we are positioning ourselves as the forefront of this technology cloud revolution in multiple domains. I personally am incredibly excited for what's ahead for CEVA.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Now I will turn the call over to Yaniv for the financial.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Thank you, Amir. I'll now start by reviewing the results of our operations for the third quarter of twenty twenty four. Revenue for the fourth quarter increased 21% to $29,200,000 as compared to $24,200,000 for the same quarter last year. The revenue breakdown is false. Licensing and innovative revenue increased 33% to $15,700,000 reflecting 54% of our total revenues as compared to $11,800,000 for the fourth quarter of twenty twenty three.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Royalty revenue increased 9% to $13,500,000 reflecting 46 of our total revenues, up from $12,300,000 for the same quarter last year. This is the fifth sequential year over year growth in loans. Quarterly gross margin came in as forecasted and guided, 88% on a GAAP basis and 89% on a non GAAP basis. Our quarterly GAAP operating expenses for the fourth quarter was at the mid range of our guidance range of $25,800,000 Total non GAAP operating expenses for the fourth quarter, excluding equity based compensation expenses, amortizations of intangibles and deal costs from $21,600,000 also at the mid range of our guidance. GAAP operating income for the fourth quarter was $100,000 the first GAAP positive quarter in 2024, up from a GAAP operating loss of $2,800,000 in the same quarter a year ago.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Net and non GAAP operating margins and net income were 15% of revenues at $4,500,000 80 8 percent and 1 hundred and 30 percent higher than operating margin of 8% and operating income of $1,900,000 recorded in the fourth quarter of twenty twenty three, respectively. Strong business execution and expense monitoring contributed to increased growth and profitability. Financial income net was negative $100,000 compared to $1,800,000 of income for the fourth quarter of twenty twenty three, significantly lower than our estimate of $1,200,000 This was due to a significant fall in value of the euro versus the U. S. Dollar in the fourth quarter of over 7%, impacting the value of our euro dominated assets, especially French related tax receivables.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

GAAP and non GAAP taxes were approximately $1,700,000 slightly higher than our guidance and affected by geographics of revenue recognized from deal and royalty revenues. GAAP net loss for the fourth quarter was $1,700,000 and diluted loss per share was $0.07 as compared to a net loss of $8,100,000 and diluted loss per share of $0.34 for the fourth quarter of twenty twenty three. Non GAAP net income and diluted earnings per share for the fourth quarter of twenty twenty four increased by 1210% to $2,700,000 and $0.11 respectively, as compared to net income of $2,400,000 and diluted income per share of $0.1 reported from the same period last year. With respect to other related data, shipped units by Seabell licensees during the fourth quarter of twenty twenty four were six twenty three million units, up 38% from the fourth quarter twenty three reported shipments. Of the six twenty three million units reported, 129,000,000 units or 21% were for mobile handset modems.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Four fifty nine million units were for concealed IoT products, up from three twenty five million units in Q4 of last year. '30 '5 million units were for industrial IoT products, up from 27,000,000 units in last year. Bluetooth shipments were a record high of three forty three million units in the quarter, up 41% year over year. Total IoT shipments were 46,000,000 units, up 37% year over year. And our Wi Fi shipments were a record 66,000,000 units, up 110 year over year.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Wi Fi royalties were up 175% year over year, driven by the higher royalty for Wi Fi six products as shipment volumes continue to ramp up. As for the year, our total unit shipments were 2,000,000,000 in 2024, up 22% year over year, which equivalent to more than 60 CEVA powered devices sold every second in 2024. Annual mobile modem shipments were up 19% year over year to three forty million units, reflecting robust demand for mobile and smartphones, which offer similar feature sets to more expensive mid range phones. Annual consumer IoT related shipments were 1,500,000,000 units, up 21% year over year. Annual industrial IoT related shipments were 126,000,000 units, up 50% year over year.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Wi Fi, cellular IoT and audio AI shipments all showed strong year over year growth of 71%, thirty one % and thirty six %, respectively, from 2023. In terms of royalty contribution highlights, Bluetooth royalties were up 54% year over year, reflecting ASP uplift for newer generations of Bluetooth shipping with better royalty economics. On the annual financial metrics, revenue increased 10%, above our 4% to 8% initial guidance for the year. Our non GAAP gross profit remained strong at 89%. Non GAAP operating margins and operating income more than doubled to nine percent and $10,000,000 and net income and diluted earnings per share also doubled to $9,000,000 and $0.36 for last year, all demonstrating and contributing to increased shareholders' value.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

As for the balance sheet, as of 12/31/2024, CVA cash, cash equivalent balances, mark through securities and bank deposits were approximately $164,000,000 In the fourth quarter, we purchased approximately 32,000 shares for approximately $1,000,000,000 and for the year, we repurchased approximately 375,000 shares for approximately $8,500,000 And with today, around 1,000,000 shares are available for repurchase under the repurchase program as expanded in November of last year. Our DSO for the fourth quarter of twenty twenty four was around fifty days, similar to the prior quarters. During the quarter, we generated $8,000,000 of cash from operating activities. On loan depreciation and amortization was $1,100,000 and purchase of fixed assets was $1,000,000 At the end of the fourth quarter, our headcount was four twenty eight people, of whom three forty nine were juniors. Now for the guidance.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Amir highlighted our 2024 achievements and our strong building blocks for longer term growth and for that we first presented in our December twenty three Investor Day. In 2024, we managed to execute better than our plan and achieve important milestone. This process this progress has enabled us to project 2025 as another year of growth for multiple financial and business aspects. We have a healthy background and promising pipeline of prospects as well as several positive trends and tailwinds with regards to continued market penetration for Bluetooth, Wi Fi, cellular IoT and smartphone technologies. On an annual basis, our total revenue is expected to grow 7% to 11% over 2024, with lower growth in the first half of the year and higher in the second half, similar to prior year and seasonal trends.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

On the expense side, we plan to increase our 2025 overall expense levels including both cost of revenue and OpEx at a significantly lower growth rate than our top line growth and at the range of 2% to 6% or $99,000,000 to 103,000,000 for next year. Overall non GAAP POGS expense is expected to increase by approximately $2,000,000 and our non GAAP OpEx is expected to increase by approximately $2,000,000 From the guidance and activities we have just discussed, we anticipate non GAAP operating income and operating margins as well as non GAAP net income and fully diluted EPS to grow significantly year over year by approximately 48% to 52%, specifically for the first quarter of twenty twenty five. With typical seasonality shipments of consumer IoT and mobile products post the holiday season, we expect overall revenues to be sequentially lower and in line with street estimates, still significantly higher than the first quarter of twenty twenty four. Revenue is forecasted to be $25,500,000 to $27,500,000 Gross margin is expected to be slightly lower than what we just reported for the fourth quarter due to lower seasonal royalty revenue and allocation of design activities for strategic customer. We forecast 87% on a GAAP basis and 88% on non GAAP basis.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Excluding an aggregate of 100,000 of equity based compensation expenses and $100,000 for amortization of acquired intangibles. GAAP OpEx for the first quarter is expected to be in the range of $25,100,000 to $26,100,000 a bit lower than the level we just reported for the fourth quarter. Of our anticipated total operating expenses for the first quarter, '4 million dollars is expected to be attributed to equity based compensation expense, $200,000 for amortization of acquired intangible and $100,000 of costs associated with business acquisition. Our non GAAP OpEx is expected to be in the range of $21,000,000 to $22,000,000 also just below the fourth quarter twenty twenty four levels. When interest income is expected to be approximately $1,300,000 taxes for the first quarter are expected to be approximately $1,200,000 and share count for the first quarter is expected to be 25,400,000.0 shares.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Francois, you can open the Q and A sessions, please.

Operator

Thank you. We will now begin the question and answer session. Today's first question comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Yes, thanks for taking my question. Congratulations on the great year, good quarter and ending the year. Just my question on the MCUs, as we're talking about AI moving to the edge, more and more of the processors need to have integrated MPUs. So with your license agreement with the MCU player or maybe just in general the MCU players in the market, is there an opportunity not only for your wireless but for the MPU to get integrated into these OEM MCUs?

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Yes, Kevin, thanks for the question. This is Amir. Yes, definitely. In this case, we highlighted basically our wireless technology as a license across the board to the MCU top tier customer. In addition to that, definitely, as we mentioned, we licensed in other deals our new phone nano NTUs that goes very nicely alongside our wireless connectivity and cell phone technology, all those different MCU players.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

So what we definitely see is the trend that all the MCU players now adding more and more AI capabilities, with that and that level of investment, there is a different level of gaps in technology needs that we need from us to come and have them to deliver in the market. And overall, what we see on our surface as the player that can enable the MCU marketplace to integrate different type of technologies from connectivity to AI as well.

Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Okay, great. And I wonder if you could provide any detail on your U. S. Mobile OEM with their in house five gs modem of when the royalty revenues start and maybe kind of what the run rate looks like and how it increases over time?

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

We cannot expand beyond what we said in the prepared remarks other than the fact that we are excited to continue when we get the royalty reports, we'll have a better idea from other customers, including this one, and that's true for others as well. So it's an exciting opportunity, and we're looking forward to it in the next for the next couple of years.

Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Okay, great. Thanks and congratulations again.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Thank you.

Operator

Thank

Operator

you. And our next question comes from Suji Desilva with Roth Capital. Please go ahead.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Hi, Amir, Yaniv. Congratulations on the strong calendar '24 for me as well. So maybe you could talk a little bit about the AI news recently about the DeepSeq model in China and the lower potential footprint for LLMs, expanding the edge opportunity. Maybe you could talk about if you see DeepSeq is helping accelerate your opportunity and if you've seen China kind of infer activity picking up around this?

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Yes, definitely, Suji. This is Amir. Two comments here. One, first, on so called the different regional innovation, we see both The U. S.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Market and the Western world as well as China really innovating a lot in the AI domain. And this is really great opportunity for us across the globe. In terms of the new models that are coming out, this is exactly what we were looking for and anticipating that will come, which basically means a much more optimized model that can run with a smaller footprint and can drive lower power type of devices, enabling the LLMs to run locally, what we have talked about for a while, the smart edge. So we definitely see that as an accelerator to enable the different devices around us to be able to run different type of LLMs and provide great type of accessibility and lower cost structure to drive higher volume and adoption across the edge devices. So far, this is we were very happy to see the innovation and the progress globally as well as with this specific case.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

And with that, I would say that if we look at our activities today overall, what we are seeing is even more velocity and further increase of demand and interest of output for of NPUs and overall the ability to run AI models on the edge.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay. Thanks, Amir. And then on Wi Fi, it seems like that's going to be a strong growth driver for '25. I'm wondering if we should expect

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

the penetration to kind of hit an S curve that where your penetration is today if it hits

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

an S curve similar to Bluetooth or whether it be a steady kind of penetration increase? And if you could just touch on which end markets Wi Fi will drive the Wi Fi growth in 2025,

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

that would be helpful. Thanks.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Yes. So we are right now really in the midst of the transition from the Wi Fi 4.5 to Wi Fi six. We licensed to more than 40 different customers in the last few years.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

So this is really where we're starting the acceleration. Already 2024 was a very strong growth year for us in terms of Wi Fi shipment volume, as well as higher ASP per unit as the transition to WiFi six, as we alluded already in Dynalist Day on Dynalist Day at the end of twenty twenty three. And with that 2025, we definitely expect to see even further acceleration of that growth. And as well as you are talking about the use cases and the proliferation, the YPhase six is the strongest technology in Tesla penetration across all the different IoT markets and submarkets. This is the standard that really helped to not only increase the throughput in terms of data throughput, but also increase capacity and better utilization of the spectrum on the edge of so called IoT devices.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

So this is really we are in the middle and really in the acceleration of the transition of our customer base moving to IPv6.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

I will add maybe a little bit more about the history. Remember, when we started in 2020 to license Bluetooth, it took few years of licensing activity, then it took few years to ramp up. And this year, we've reached 1,100,000,000 devices. In 2023, '2 years ago, about 50% of the Bluetooth deals are ultimately included, the WiFi and Bluetooth as a combo chip. And this year we've reached the one almost 180,000,000,000 units for WiFi.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

So the opportunity in the next couple of years for WiFi and Bluetooth type combo chips with higher ASPs as we saw just starting to pick up in 2024 is really some of the very, very exciting growth opportunities in the next couple of years. Anywhere between that 180,000,000 yen for Wi Fi to the 1,100,000,000.0 yen Bluetooth devices is where we're going to see ourselves in a few years.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

And just to clarify, if you saw a combo you counted as one Bluetooth and one WiFi?

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

That's correct.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay, great. Thanks guys. Thanks, Mir. Thanks, Anup.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Thank you.

Operator

And our next question today comes from Gus Richard with Northland. Please go ahead.

Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Yes. Thanks for taking my questions and congratulations on great results. Just in terms of modeling that you've done for the year and sort of your expectations, do you expect your cell phone modem revenue to grow faster than your Wi Fi or will WiFi outstrip that? Just relative growth rates would be helpful.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Yes. I wish I would have known what to answer here, but half of our business is royalties. And those royalties, we understand the trends, we know the players in the industry, on each of the industries we play in. We have very good relationship with many of them. But what we don't have, the crystal ball, is really to the ramp up timing and to the margin of any player.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

It could be a handset player. It could be a Wi Fi or an AI or another modem player, which we have added late last year for the first time after many, many years. And that piece is missing from our model on a longer term basis. And as soon as we've seen some of our new customers starting to shift, that gives us new information that we could build and build our models from. But sometimes until the first batch starts, we don't have exactly that crystal model.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

So a lot of good moving pieces. Looking into 2025, hard to say exactly if it's a Q1 or Q2 or Q4. Usually, the seasonality of some of the consumer IoT less than the industrial IoT is the second half loaded. That's historically been the case. But that could change if any big enough customer or customers or market pick up for whatever reason earlier in the year.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

So a lot of moving pieces and that looks quite positive, but can tell you what market today in February will end up the strongest for 2025.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

I would add in addition to what Jean yes, I would add in addition to what Yaniv said Sorry?

Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Go ahead, sorry.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Okay, thanks. I would add that in addition to what Yaniv said, overall, we are extremely encouraged with the royalty growth and the volume of shipment that we have seen in 2024 literally across all our product lines and markets. With that, we expect significant growth also continuing in 2025 across our Wi Fi, Bluetooth, mobile, cellular IoT and even potentially in five gs WAN. So overall, we see that it's really positive for us moving forward. With that in mind, generally speaking, we see the first half so called slower than the second half and a really strong acceleration in the second half.

Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Got it. And then just a quick question on AI. The model seem to be bifurcating between large language models and reasoning language models or train of thought. And it sounds like and the reasoning models need more compute, more memory. Is the edge going to be dominated by LLMs?

Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Or is there an opportunity for the reasoning model sort of how do you think about the market as it evolves? And are you positioned to capture both or does one just not matter?

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Yes. So first from a market, so our expectation is we'll see the multiple tiers of technologies, capabilities and with that demand of the technology. So we will see the very more the low tier simple, simple models all the way to somewhat more sophisticated LN that still can be efficient and cost power and size wise to be able to be run on the edge. From our perspective, of course, our strategy is to be able to deliver the complete portfolio of AI accelerators or AI NPUs that can support on the way from the hundreds of so called GEOOps operation that typically goes with the long mid tier MCUs all the way to the high end hundreds of top shock requirements on the edge from more sophisticated SoC that you can see in mobile PC or to more integrated systems and so on. So we definitely see that fabrication happening on the edge and with that our technology and portfolio will support it.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

And I guess we're very excited about this.

Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Thank you.

Operator

Thank

Operator

you. Our next question comes from Chris Reeder with Barclays. Please go ahead.

Analyst

Hi. Thanks for taking my questions and congratulations on the strong quarter. I wanted to ask about any of the new licensing deals and whether they might also include some of the customization that you spoke about last quarter and this quarter that was kind of just pressuring the gross margin a little bit. I'm just wondering going forward, I know you mentioned that due to seasonality, the gross margin in the next quarter would be a little lower, but are we going to see any more of that customization come in with the new licensing deals or do you have any visibility on that?

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

Yes, great question. Thanks for that. So the the answer for this call is no. We don't have any customization. These are all off the shelf technologies that we already have and are happy to offer and deliver to our customers immediately.

Yaniv Arieli
Yaniv Arieli
CFO at CEVA

But less than most from last year's deal, the very large mobile space, mobile type is going to continue a few quarters into 2025. So it's not a new deal from Q4, but it's still the deal from Q3 that we've had, started to pick up a little bit now in Q4, but most of the work will happen now in 2025 and the rest of the leftovers and while just a notch to lower in the gross margin. Also for Q1, the royalties are usually the lowest core of royalties just because of the seasonality. That will change over the year.

Analyst

Got it. Thanks. And just regarding the Neupro solution, did you say earlier that there were two eels on the quarter?

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

In the quarter we have one deal of the new phone number and one deal of our DSP for AI application.

Analyst

Okay. Thank you. That's clear.

Operator

Thank

Operator

you. And our next question is a follow-up from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

I'm sorry, I did meaning to ask for a follow-up, sorry.

Operator

No problem at all. And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to Amir Panish for closing remarks.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Thank you. On behalf of CEVA team, thank you for joining us today. We are proud to have delivered strong year over year growth in our licensing and warranty businesses, capping off a successful year With a compelling roadmap of innovative IPs that enable edge devices to connect sense and infer data, we are confident in our ability to drive long term shareholder value in the Smart Edge era. As we continue into 2025, I wish you and your families a happy and prosperous year. I look forward to connecting with many of you at upcoming industry events and conferences throughout the rest of the year.

Amir Panush
Amir Panush
Chief Executive Officer at CEVA

Richard, I will hand over to you to wrap it up.

Richard Kingston
Richard Kingston
Vice President of Market Intelligence, Investor & Public Relations at CEVA

Thank you, Amir. Thank you, everybody. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form eight K and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences Mobile World Congress twenty twenty five from March '6 in Barcelona, Spain Loop Capital's Sixth Annual Investor Conference, March 11 in New York and the thirty seventh Annual Roth Conference, March seventeen and twenty eighteen in Dana Point, California. Further information on these events and all events we will be participating in can be found on the Investors section of our website.

Richard Kingston
Richard Kingston
Vice President of Market Intelligence, Investor & Public Relations at CEVA

Thank you and goodbye.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Executives
    • Richard Kingston
      Richard Kingston
      Vice President of Market Intelligence, Investor & Public Relations
    • Amir Panush
      Amir Panush
      Chief Executive Officer
    • Yaniv Arieli
      Yaniv Arieli
      CFO
Analysts
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Earnings Conference Call
CEVA Q4 2024
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