8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 16, 2021

CEVA, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

000-49842 (Commission File Number)	77-0556376 (I.R.S. Employer Identification No.)
15245 Shady Grove Road, Suite 400, Rockville, MD  (Address of Principal Executive Offices)	20850 (Zip Code)

(240)-308-8328
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 per share	CEVA	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Security Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On February 16, 2021, CEVA, Inc. (the “Company”) announced its financial results for the quarter and year ended December 31, 2020. A copy of the press release, dated February 16, 2021, is attached and filed herewith as Exhibit 99.1. On the same day, the Company will hold a conference call to discuss its financial results for the fourth quarter and year ended December 31, 2020. A copy of the script of the conference call is attached hereto as Exhibit 99.2. This information, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.

In addition to the disclosure of financial results for the quarter and year ended December 31, 2020 and 2019 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release and script also included non-GAAP net income and diluted earnings per share (EPS) figures for the referenced periods.

Non-GAAP net income and diluted earnings per share for (1) the fourth quarter of 2020 excluded (a) equity-based compensation expenses, net of taxes, and (b) the impact of the amortization of acquired intangible and other assets, net of taxes, associated with the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies; and (2) the fourth quarter of 2019 excluded (i) equity-based compensation expense, net of taxes, and (ii) the impact of the amortization of acquired intangible assets associated with the acquisition of RivieraWaves, the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies.

Non-GAAP net income and diluted earnings per share for (1) the full year 2020 excluded (a) equity-based compensation expenses, net of taxes, and (b) the impact of the amortization of acquired intangible and other assets, net of taxes, associated with the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies; and (2) the full year 2019 excluded (i) equity-based compensation expense, net of taxes, (ii) the impact of the amortization of acquired intangible assets associated with the acquisition of RivieraWaves, the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies, and (iii) deal expenses and write-off of an acquired lease associated with the acquisition of the Hillcrest Labs business.

The Company believes that the reconciliation of financial measures in the press release and script is useful to investors in analyzing the results for the quarters ended December 31, 2020 and 2019 because the exclusion of such expenses may provide a more meaningful analysis of the Company’s core operating results and comparison of quarterly results. Further, the Company believes it is useful for investors to understand how the expenses associated with the application of FASB ASC No. 718 are reflected on its statements of income. The reconciliation of financial measures should be reviewed in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations that, when viewed with its GAAP results and the accompanying reconciliation, offer a more complete understanding of factors and trends affecting the Company’s business. The reconciliation of financial measures should not be viewed as a substitute for the Company’s reported GAAP results.

ITEM 9.01. Financial Statements and Exhibits.

(d) Exhibits.
99.1	Press release of CEVA, Inc., dated February 16, 2021.
99.2	Script of the conference call of CEVA, Inc., dated February 16, 2021.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CEVA, INC.
Date:     February 16, 2021	By:	/s/ Yaniv Arieli
		Yaniv Arieli
		Chief Financial Officer

EX-99.1

Exhibit 99.1

CEVA, Inc. Announces Fourth Quarter and Year End 2020 Financial Results

● Strong fourth quarter results, exceeding revenue and profitability expectations

● Record quarterly royalty revenue of $16.1 million, up 19% year-over-year

● Record annual total revenue of $100.3 million, up 15% year-over-year

● Record annual licensing revenue and licensing agreements signed, totaling $52.5 million and 55, respectively

● Record annual royalty revenue, underpinned by record royalty contribution from base station & IoT product category of $22.3 million, up 72% year-over-year

● Record quarterly and annual CEVA-powered shipments of 484 million and 1.3 billion units, respectively

Rockville, MD, February 16, 2021 – CEVA, Inc. (NASDAQ: CEVA), the leading licensor of wireless connectivity and smart sensing technologies, today announced its financial results for the fourth quarter and year ended December 31, 2020.

Total revenue for the fourth quarter of 2020 was $28.1 million, a slight decrease of 1%, when compared to $28.3 million reported for the fourth quarter of 2019. Fourth quarter 2020 licensing and related revenue was $12.1 million, a decrease of 18%, when compared to $14.8 million reported for the same quarter a year ago. Royalty revenue for the fourth quarter of 2020 was a record high of $16.1 million, an increase of 19%, when compared to $13.5 million reported for the fourth quarter of 2019.

Gideon Wertheizer, Chief Executive Officer of CEVA, stated: “We are very pleased to end the year with another excellent quarter, in both licensing and royalties. We concluded 21 licensing agreements, including a strategic and comprehensive agreement with a top tier smartphone OEM who will develop a range of CEVA-based connectivity chips to serve its smartphone and wireless accessories product lines. Our record high royalty revenue reflects a particularly strong quarter in smartphone shipments and continued traction in our base station and IoT product category, which grew 50% year over year.”

Mr. Wertheizer continued: “Our organization worldwide showed tremendous resilience and determination to cope with the challenges the COVID-19 pandemic presented. Our licensing business had another record year as we grew our customer base in Wi-Fi, Bluetooth, 5G and automotive. Our annual royalty business also reached an all-time high, driven by 72% year-over-year growth in base station and IoT royalty revenues, to contribute $22.3 million. We continue to benefit from the expedited deployment of 5G base station and growing use of smart TV, laptops and other IoT devices. We entered 2021 with strong momentum in both our licensing and royalty businesses as our primary markets are expected to continue to expand the adoption of wireless connectivity and smart sensing technologies.”

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During the quarter, CEVA completed 21 license agreements. Five of the agreements were for smart sensing products and 16 for connectivity products with seven first-time customers of CEVA. Customers’ target products include 5G smartphones, TWS earbuds, cellular IoT devices and a wide variety of other IoT devices. Geographically, eight of the deals signed were in China, six were in the U.S., four in APAC and three were in Europe.

GAAP net income for the fourth quarter of 2020 decreased to $0.6 million, compared to $3.1 million reported for the same period in 2019. GAAP diluted earnings per share for the fourth quarter of 2020 decreased to $0.03 from $0.14 a year ago. The fourth quarter 2020 financials included a $2 million tax expense due to withholding taxes which cannot be utilized in future years.

Non-GAAP net income and diluted earnings per share for the fourth quarter of 2020 were $4.7 million and $0.20, respectively, comparing the $6.8 million and $0.30 reported for the fourth quarter of 2019. Non-GAAP net income and diluted earnings per share for the fourth quarter of 2020 excluded: (a) equity-based compensation expense, net of taxes, of $3.4 million, and (b) the impact of the amortization of acquired intangible and other assets, net of taxes, of $0.7 million associated with the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies. Net income and diluted earnings per share for the fourth quarter of 2019 excluded: (a) equity-based compensation expense, net of taxes, of $2.8 million, and (b) the impact of the amortization of acquired intangible assets of $0.9 million associated with the acquisition of RivieraWaves and the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies.

Full Year 2020 Review

Total revenue for 2020 was $100.3 million, an increase of 15%, when compared to $87.2 million reported for 2019. Licensing and related revenue for 2020 was a record $52.5 million, an increase of 10%, when compared to $47.9 million reported for 2019. Royalty revenue for 2020 was a record $47.8 million, representing an increase of 22%, as compared to $39.3 million reported for 2019.

U.S. GAAP net loss and diluted loss per share for 2020 were $2.4 million and $0.11, respectively, compared to U.S GAAP net income and diluted earnings per share of $0.0 million and $0.00, respectively reported for 2019.

Non-GAAP net income and diluted earnings per share for 2020 were $13.7 million and $0.60, respectively, representing an increase of 3% and 2%, respectively, over $13.4 million and $0.59 reported for 2019, respectively. Non-GAAP net income and diluted earnings per share for 2020 excluded (a) equity-based compensation expense, net of taxes, of $13.4 million, and (b) the impact of the amortization of acquired intangible assets, net of taxes, of $2.7 million associated with the acquisition of the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies. Non-GAAP net income and diluted earnings per share for 2019 excluded (a) equity-based compensation expense, net of taxes, of $10.1 million, (b) the impact of the amortization of acquired intangible assets of $2.3 million associated with the acquisitions of RivieraWaves and the Hillcrest Labs business, and the investments in NB-IoT and Immervision technologies, and (c) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction of $0.8 million.

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Yaniv Arieli, Chief Financial Officer of CEVA, stated: "We are extremely proud of our performance in 2020, highlighted by the numerous records achieved in the fourth quarter and the full year. These include record royalty revenue for the fourth quarter and the full year 2020 of $16.1 million and $47.8 million, respectively, generated from a record 484 million and 1.3 billion CEVA-powered devices, respectively. We also managed to deliver non-GAAP EPS of $0.60 for the full year, despite recent foreign exchange headwinds. At the end of the year, our cash and cash equivalent balances, marketable securities and bank deposits were approximately $160 million, with no debt.”

CEVA Conference Call

On February 16, 2021, CEVA management will conduct a conference call at 8:30 a.m. Eastern Time to discuss the operating performance for the quarter.

The conference call will be available via the following dial in numbers:

● U.S. Participants: Dial 1-844-435-0316 (Access Code: CEVA)

● International Participants: Dial +1-412-317-6365 (Access Code: CEVA)

The conference call will also be available live via webcast at the following link: https://www.webcaster4.com/Webcast/Page/984/39449. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

For those who cannot access the live broadcast, a replay will be available by dialing +1-877-344-7529 or +1-412-317-0088 (access code: 10151090) from one hour after the end of the call until 9:00 a.m. (Eastern Time) on February 23, 2021. The replay will also be available at CEVA's web site www.ceva-dsp.com.

For More Information, Contact:

Yaniv Arieli CEVA, Inc. CFO +1.650.417.7941 yaniv.arieli@ceva-dsp.com Richard Kingston CEVA, Inc. VP Market Intelligence, Investor & Public Relations +1.650.417.7976 richard.kingston@ceva-dsp.com

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About CEVA, Inc.

CEVA is the leading licensor of wireless connectivity and smart sensing technologies. We offer Digital Signal Processors, AI processors, wireless platforms and complementary software for sensor fusion, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling technologies for a smarter, connected world. We partner with semiconductor companies and OEMs worldwide to create power-efficient, intelligent and connected devices for a range of end markets, including mobile, consumer, automotive, robotics, industrial and IoT. Our ultra-low-power IPs include comprehensive DSP-based platforms for 5G baseband processing in mobile and infrastructure, advanced imaging and computer vision for any camera-enabled device and audio/voice/speech and ultra-low power always-on/sensing applications for multiple IoT markets. For sensor fusion, our Hillcrest Labs sensor processing technologies provide a broad range of sensor fusion software and IMU solutions for AR/VR, robotics, remote controls, and IoT. For artificial intelligence, we offer a family of AI processors capable of handling the complete gamut of neural network workloads, on-device. For wireless IoT, we offer the industry’s most widely adopted IPs for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax) and NB-IoT.

CEVA is a sustainable and environmentally conscious company, adhering to our Code of Business Conduct and Ethics. As such, we emphasize and focus on environmental preservation, recycling, the welfare of our employees and privacy – which we promote on a corporate level. At CEVA, we are committed to social responsibility, values of preservation and consciousness towards these purposes.

Visit us at https://www.ceva-dsp.com/ and follow us on Twitter, YouTube, Facebook, LinkedIn and Instagram.

Forward Looking Statement

This press release 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.  Forward-looking statements include Mr. Wertheizer’s statements about optimism regarding the continued traction in CEVA’s base station and IoT product category, benefits derived from the expedited deployment of 5G base station and growing use of smart TV, laptops and other IoT devices, as well as the strong momentum in CEVA’s licensing and royalty businesses in 2021 as its primary markets are expected to continue to expand the adoption of wireless connectivity and smart sensing technologies. The risks, uncertainties and assumptions that could cause differing CEVA results include: the scope and duration of the COVID-19 pandemic; the extent and length of the restrictions associated with the COVID-19 pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA DSP cores and other technologies to continue to be strong growth drivers for us; our success in penetrating new markets, including in non-baseband markets, and maintaining our market position in existing markets; our ability to diversify the company’s royalty streams, the ability of products incorporating our technologies to achieve market acceptance, the maturation of the connectivity, IoT and 5G markets, the effect of intense industry competition and consolidation, global chip market trends, the possibility that markets for CEVA’s technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance; our ability to timely and successfully develop and introduce new technologies; and general market conditions and other risks relating to our business, including, but not limited to, those that are described from time to time in our SEC filings.  CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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CEVA, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME – U.S. GAAP

U.S. dollars in thousands, except per share data

	Three months ended					Year ended
	December 31,					December 31,
	2020		2019		2020			2019
	Unaudited
Revenues:
Licensing and related revenues	$	12,068	$	14,806	$	52,513		$	47,890
Royalties		16,077		13,506		47,813			39,262
Total revenues		28,145		28,312		100,326			87,152
Cost of revenues		2,490		2,823		10,749			10,106
Gross profit		25,655		25,489		89,577			77,046
Operating expenses:
Research and development, net		16,315		14,250		62,010			52,843
Sales and marketing		3,135		3,554		11,907			12,363
General and administrative		3,223		3,481		14,116			11,841
Amortization of intangible assets		575		746		2,307			1,923
Total operating expenses		23,248		22,031		90,340			78,970
Operating income (loss)		2,407		3,458		(763	)		(1,924	)
Financial income , net		595		992		3,284			3,291
Income before taxes on income		3,002		4,450		2,521			1,367
Income taxes		2,367		1,388		4,900			1,339
Net income (loss)	$	635	$	3,062	$	(2,379	)	$	28
Basic net income (loss) per share	$	0.03	$	0.14	$	(0.11	)	$	0.00
Diluted net income (loss) per share	$	0.03	$	0.14	$	(0.11	)	$	0.00
Weighted-average number of Common Stock used in computation of net income (loss) per share (in thousands):
Basic		22,249		21,920		22,107			21,932
Diluted		22,911		22,373		22,107			22,323

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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

 U.S. Dollars in thousands, except per share amounts

	Three months ended						Year ended
	December 31						December 31,
	2020			2019			2020			2019
	Unaudited
GAAP net income (loss)	$	635		$	3,062		$	(2,379	)	$	28
Equity-based compensation expense included in cost of revenue		166			166			639			630
Equity-based compensation expense included in research and development expenses		1,759			1,543			6,874			5,857
Equity-based compensation expense included in sales and marketing expenses		542			383			2,038			1,495
Equity-based compensation expense included in general and administrative expenses		1,099			779			4,085			2,736
Income tax benefit related to equity-based compensation expenses		(196	)		(101	)		(256	)		(574	)
Amortization of intangible assets, net of taxes, related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies, and deal costs and write off of an acquired lease related the Hillcrest Labs transaction		685			945			2,746			3,203
Non-GAAP net income	$	4,690		$	6,777		$	13,747		$	13,375
GAAP weighted-average number of Common Stock used in computation of diluted net income per share (in thousands)		22,911			22,373			22,107			22,323
Weighted-average number of shares related to outstanding stock-based awards (in thousands)		305			462			979			475
Weighted-average number of Common Stock used in computation of diluted earnings per share, excluding the above (in thousands )		23,216			22,835			23,086			22,798
GAAP diluted net income (loss) per share	$	0.03		$	0.14		$	(0.11	)	$	0.00
Equity-based compensation expense, net of taxes	$	0.14		$	0.12		$	0.59		$	0.45
Amortization of intangible assets, net of taxes, related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies, and deal costs and write off of an acquired lease related the Hillcrest Labs transaction	$	0.03		$	0.04		$	0.12		$	0.14
Non-GAAP diluted net income per share	$	0.20		$	0.30		$	0.60		$	0.59

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CEVA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in thousands)

	December 31,			December 31,
	2020				2019 (*)
	Unaudited			Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	21,143		$	22,803
Marketable securities and short term bank deposits		108,987			121,782
Trade receivables, net		14,765			11,066
Unbilled receivables		16,459			17,241
Prepaid expenses and other current assets		6,205			5,660
Total current assets		167,559			178,552
Long-term assets:
Bank deposits		29,529			5,368
Severance pay fund		10,535			9,881
Deferred tax assets		10,826			10,605
Property and equipment, net		7,586			7,879
Operating lease right-of-use assets		9,052			11,066
Goodwill		51,070			51,070
Intangible assets, net		10,836			13,424
Other long term assets		9,959			9,176
Total assets	$	306,952		$	297,021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	894		$	701
Deferred revenues		2,434			3,642
Accrued expenses and other payables		21,883			19,642
Operating lease liabilities		2,969			2,393
Total current liabilities		28,180			26,378
Long-term liabilities:
Accrued severance pay		11,226			10,551
Operating lease liabilities		5,772			8,273
Other accrued liabilities		885			662
Total liabilities		46,063			45,864
Stockholders’ equity:
Common stock:		22			22
Additional paid in-capital		233,172			228,005
Treasury stock		(30,133	)		(39,390	)
Accumulated other comprehensive income		478			94
Retained earnings		57,350			62,426
Total stockholders’ equity		260,889			251,157
Total liabilities and stockholders’ equity	$	306,952		$	297,021

(*) Derived from audited financial statements

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EX-99.2

Exhibit 99.2

CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

 CEVA, INC.

Fourth Quarter and Full Year 2020 Financial Results Conference Call

Prepared Remarks of Gideon Wertheizer, Chief Executive Officer and
Yaniv Arieli, Chief Financial Officer

February 16, 2021

8:30 A.M. Eastern

Good morning everyone and welcome to CEVA’s fourth quarter and full year 2020 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the fourth quarter and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and also provide qualitative data for the first quarter and full year 2021.

I will start with the forward-looking statements.

Forward Looking Statements 

Please note that today’s discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include guidance and qualitative data for the first quarter and full year 2021; optimism about 5G base station RAN deployment in China and relationship with ZTE and the opportunities presented thereby, optimism about the continued momentum in our connectivity sensing and AI technologies; ramp-up from existing Wi-Fi 4 and 5 customers; optimism that our Bluetooth technologies will allow us to penetrate the high volume smartphone market, our belief for strong licensing revenue in 2021 and potential new licensing engagements, and our belief that our royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include: the scope and duration of the pandemic; the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA’s IPs for smarter, connected devices to continue to be strong growth drivers for us; our success in penetrating new markets and maintaining our market position in existing markets; the ability of new products incorporating our technologies to achieve market acceptance; the speed and extent of the expansion of the 5G and IoT markets; our ability to execute more non-handset baseband license agreements; the effect of intense industry competition and consolidation; and global chip market trends. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

With that said, I will now hand the call over to Gideon.

Gideon

Thank you, Richard. Good morning everyone and thank you for joining us today. 2020 was an extraordinary year, with the COVID-19 pandemic accelerating the adoption of new technologies and usage models, while presenting uncertainties and enormous operational challenges worldwide. Notwithstanding the circumstances, CEVA had an exceptional year, with all-time high revenues in both licensing and royalties, and substantial market expansion in the 5G RAN, Wi-Fi 6 and automotive spaces. I will allude to these developments in more detail later on the call.

Fourth quarter was another excellent quarter with revenue and EPS significantly ahead of our expectations. Total revenue for the fourth quarter of 2020 came in at $28.1 million, our second highest quarterly revenue on record. The licensing environment continued to be healthy, at $12.1 million for the quarter, with good demand for our Wi-Fi, Bluetooth and audio DSP products. We signed a record-equaling twenty-one new agreements, of which sixteen were for connectivity and five were for smart sensing. Seven of those agreements were with first time customers. Target products for our technologies include 5G smartphones, TWS earbuds, cellular IoT for asset tracking, and a wide variety of other IoT devices.

Late in the quarter, we signed a comprehensive and sizable license agreement for our connectivity portfolio with a key OEM in the mobile space that is internalizing the developments of Wi-Fi and Bluetooth technologies and intends to deploy our connectivity portfolio across all of its 5G smartphones, TWS earbuds and other smartphone related products. This agreement along with others that we have in our pipeline reinforce our belief for a stronger and another record year in licensing revenue for 2021.

Royalty revenue came in at an all-time record high $16.1 million, up 19% year-over-year. Seasonal strength across our IoT markets and strong shipments of 4G smartphones were the key drivers for this exciting record. For the second quarter in succession, we reported all-time high royalty revenues from our Bluetooth, Wi-Fi and sensor fusion product lines.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

For the full year 2020, revenue came in at a record-setting $100.3 million, up 15% from 2019. This marks the first time that CEVA has crossed the $100 million annual revenue threshold, a year ahead of our expectations. Licensing and related revenue had a record year with $52.5 million, up 10% from last year. We continued to expand our customer base with a record 55 license agreements signed, of which seventeen were first-time customers. Annual royalty revenue came in at an all-time high $47.8 million, up 22% as compared to 2019. Royalty revenue from our base station and IoT product category grew 72% year-over-year to $22.3 million, as the momentum for our large and diverse customer base across multiple end markets continues. Royalty revenue from handsets declined slightly year over year, down 3% to $25.5 million. Units shipments of CEVA based products grew 27% year over year, to more than 1.3 billion units, with a record 750 million units from our base station & IoT customers.

In perspective, 2020 was a landmark year for both CEVA and its industries. The global pandemic highlighted the impact connectivity has on our lives and acted as a catalyst for rapid change towards digital transformation. This presents a unique set of opportunities for CEVA-differentiated technologies and operational agility, in particular in four key markets: 5G RAN, Wi-Fi, TWS earbuds and automotive. Let me take the next few minutes to elaborate on these growth drivers and the anchors CEVA already has in place in these lucrative markets.

5G RAN

5G offers faster data rates and ubiquitous connectivity. The fast rollout of 5G networks to date is predominantly aimed at smartphone use cases. According to Ericsson’s most recent Mobility Report, by the end of 2020, over 1 billion or 15 percent of the world’s population live in a 5G coverage area. China in particular is very advanced with 70% of the global 5G connections according to the GSM Association. Beyond smartphones, 5G offers new growth opportunities in regards to URLLC and IoT applications. These applications will be at the center of next-generation technology deployments in industrial, robotics, AR and autonomous cars.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

The digital transformation, and the new applications 5G enables, present sizable opportunities for CEVA’s 5G RAN technologies beyond our existing incumbency in baseband. This specifically applies to:

- The growing use of Active Antennas, a new antenna technology that combines arrays of antennas with a DSP to process complex algorithms such as massive MIMO and beamforming for more precise steering of the antenna signal which gains a substantial boost in capacity and energy efficiencies.

- The emergence of O-RAN and vRAN which aims to transform the telecom industry from relying on proprietary platforms from a limited number of OEM to a disaggregate network with open interfaces and a multitude of merchant chips from incumbent and new suppliers. Rethink Research is expecting Open RAN to account for 58% of the overall RAN CAPEX spending by 2026.

With our second-to-none competitive edge in DSP processors, we are able to empower our existing and upcoming customers to innovate and quickly expand their market reach to the remote radio units and address new opportunities in the RAN space like private networks, small cells, Fixed Wireless Access and O-RAN. We are encouraged by the progress ZTE has made in the 5G RAN space, growing its share in the global RAN market from 8% to 11% on a year-over-year basis, according to Dell’Oro, and we expect other customers of ours to go into production in 2021.

Wi-Fi

Wi-Fi is deployed in over 5 billion smartphones and more than 300 million hotspots today. Cisco estimates that more than 50% of the global mobile data traffic is offloaded to Wi-Fi, and this is set to grow to over 70%. AT&T noted that its network experienced 90% Wi-Fi data growth during the pandemic.

The new Wi-Fi standards, Wi-Fi 6 and 6E, provide substantially higher data rates of up to 9.6Gbit/s vs. 1.3Gbit/s in the prior generation, Wi-Fi 5. Wi-Fi 6 also presents sizable opportunities beyond smartphones and PCs, through the proliferation of connected IoT devices such as smart home appliances, smart TVs, smart speakers, connected cars and wearables.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

Our RivieraWaves Wi-Fi 6 IP is at the forefront of the Wi-Fi 6 upgrade cycle and the only IP with successive record of accomplishment. We have signed to date more than ten Wi-Fi 6 customers, and our existing Wi-Fi 4 and 5 customer shipments grew more than six-fold in 2020, the start of a significant expected ramp up.

In addition, as I noted earlier, Wi-Fi 6 along with our Bluetooth technologies bring us opportunities to penetrate the high volume market of smartphones as more OEMs are looking to internalize wireless connectivity technologies, as well as semis that look to take advantage of our leadership in the Wi-Fi 6 and Bluetooth domains.   

TWS earbuds

The TWS earbuds market presents a lucrative opportunity for CEVA due to its size and roadmap. Per IDC, by 2020, the TWS segment reached 234 million sets and projected to reach to 400 million set by 2024, representing a CAGR of 14%. The pandemic has expedited the proliferation of TWS as more people have to work or study from home and require high quality earbuds to ensure a good experience. Additionally, large handset OEMs have recently decided to remove complimentary earbuds from new phone packages, paving the way for a large merchant market for TWS earbuds.

CEVA already has a strong presence in the TWS earbuds space with our Rivierawaves Bluetooth IP. Overall, our Bluetooth technology has been adopted by more than 80 semis and OEMs to date and powered more than 520 million devices in 2020, up 44% year-over-year.

Furthermore, the future TWS earbud designs will progressively seek to add more functionalities while dealing with the challenges of finite space and battery life. Among those functionalities are noise cancellation for adverse environmental conditions, voice recognition, AI and sensors for activity and health tracking, all of which relates to technologies that CEVA owns. In the coming weeks, we will officially announce the world’s first comprehensive and open platform for TWS earbuds and hearables that we will license. We have already started to introduce this high value differentiated IP to lead customers and expect to conclude the first license agreement shortly.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

Automotive

The automotive market represents 9% of the global semiconductor consumption or $41 billion in sales. Yet, selling into the space requires overcoming large entry barriers and it commonly takes between three to five years for semiconductor vendors using new technology to qualify a design at a Tier one or OEM before going into production. With that said, as soon as production starts, the product lifecycle in automotive is longer than most other markets, ensuring a stable source of revenue and profits and plays well with CEVA’s R&D investment strategy.

In recent years, the automotive industry has undergone a massive technology transformation driven by the adoption of ADAS and electrification.

ADAS applications such as Lane Departure Warning, Emergency Breaking, Parking Assistance, Driving Monitoring Systems, require high performance DSPs to process sensory data captured by cameras, radars, Lidars and other sensors surrounding the vehicle.

Automotive electrification is gaining momentum as a result of an increased emphasis of governments to lower CO2 emission as threats of climate change produce more and harsher storms, wildfires and flooding. Battery management system plays a key role in the electrical powertrain, in charge of keeping high efficiency and longer life of the battery cells. Powertrain vendors and OEMs have recently started to use DSPs along with AI to boost the performance of battery systems for longer drive per charge in diverse environmental and use conditions.

Leading Tier Ones and OEMs are increasingly receptive to new DSP advancements, and the collaborative business model that CEVA proposes in the areas of ADAS and powertrain. Our latest SensPro2 DSP architecture, the world’s foremost DSP for sensor processing, provides a unified architecture for real time monitoring and AI processing of sensory data extracted from radars, camera’s, Lidar, Cellular V2X and varieties of environmental sensors. Our CDNN AI toolkit, is able to quantize, prune and optimize neural networks and speed up neural network inference processing, a crucial requirement for a fast response time of the vehicle.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

These core technologies and competencies were the drivers for the two key agreements we signed during 2020 with two of the largest automotive semi’s that plan to use our technologies for powertrain and level 2+ ADAS. We will continue in the coming year to strengthen our relationship with our two key customers and seek to engage with other stakeholders, capitalizing on core technologies and our growing reputation in automotive. It also aligns with CEVA’s strong focus and commitment to environmental improvement technologies and products.

Before my closing remarks, we would like to express our concerns and sympathies for those affected by the global pandemic. The ongoing situation presents us with numerous challenges, and we continue to focus on the safety of our employees, customers and suppliers.

Our record-setting results for the year demonstrates the breadth of our technology portfolio, its resiliency to global events and primarily our employees’ focus and devotion to maintain and even exceed aggressive targets that we set for ourselves.

As we enter 2021, we look to continue to be at the forefront of the digital transformation and capitalize on our core technologies and customer diversity to grow our market share and maximize our return from growing industries, in particular 5G RAN, Wi-Fi, TWS earbuds and automotive that I discussed earlier. These industries present multi-year growth opportunities for our connectivity sensing and AI technologies, and we are well positioned to take advantage of it.

Finally, I would like to take this opportunity to thank all of our employees for their hard work, innovation and fantastic execution. I would like to extend my thanks to our partners, suppliers and last but not least to our investors for their confidence and support.

We wish you all a healthy, happy and prosperous year and please stay safe!

With that said, I’ll now turn the call over to Yaniv, who will outline our financials and guidance.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

Yaniv

Thank you Gideon, I’ll start by reviewing the results of our operations for the fourth quarter of 2020.

- Revenue for the fourth quarter was $28.1 million, down slightly as compared to $28.3 million for the same quarter last year. The revenue breakdown is as follows:

o Licensing and related revenue was approximately $12.1 million, reflecting 43% of total revenues, 18% lower as compared to the fourth quarter of 2019.

o Royalty revenue was a record $16.1 million, reflecting 57% of total revenues, up 19% from $13.5 million for the same quarter last year and up 28% sequentially.

o Base Station & IoT royalty revenue contributed $6.4 million in the quarter, up 50% year-over-year, with all-time record high royalty contributions from our Bluetooth, Wi-Fi and sensor fusion product lines.

o Quarterly gross margin was 91% on GAAP basis and 92% on non-GAAP basis, both higher than projected. Non-GAAP quarterly gross margin excluded approximately $0.2 million of equity-based compensation expenses and $0.2 million of amortization of other assets associated with the Immervision investment.

- Total operating expenses for the fourth quarter were $23.2 million, just over the high-end of our guidance, mainly due to accrued compensation related benefits and commission associated with the higher 2020 revenues. OPEX also included an aggregate equity-based compensation expense of approximately $3.4 million, amortization of acquired intangible assets associated with the acquisition of the Hillcrest Labs business and the Immervision investment of $0.6 million. Total operating expenses for the fourth quarter, excluding equity-based compensation expenses and amortization of intangible assets, were $19.3 million, about $0.5 million above the high end of our guidance due to the same reasons I just highlighted.

- U.S. GAAP net income for the quarter was $0.6 million, and diluted earnings per share was 3 cents, compared to net income of $3.1 million and 14 cents for the fourth quarter of 2019.

- Non-GAAP net income and diluted EPS for the fourth quarter of 2020 was $4.7 million and 20 cents, respectively, significantly higher than our internal estimates. Net income and diluted EPS for the fourth quarter of 2019 was $6.8 million and 30 cents, respectively. Non-GAAP net income and diluted earnings per share for the fourth quarter of 2020 excluded: (a) equity-based compensation expense, net of taxes, of $3.4 million, and (b) the impact of the amortization of acquired intangible and other assets of $0.7 million associated with the acquisition of the Hillcrest Labs business, and the Immervision investment. Non-GAAP net income and diluted earnings per share for the fourth quarter of 2019 excluded: (a) equity-based compensation expense, net of taxes, of $2.8 million, and (b) the impact of the amortization of acquired intangible and other assets of $0.9 million associated with the acquisition of the Hillcrest Labs business, and the Immervision investment.

- Of note, the fourth quarter 2020 financials included a $2 million tax expense due to withholding taxes which cannot be utilized in future years.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

Other related data

- Shipped units by CEVA licensees during the fourth quarter of 2020 were a record 484 million units, up 39% sequentially and up 35% from the fourth quarter 2019 reported shipments.

- Of the 484 million units shipped, 217 million units, or 45%, were for handset baseband chips, reflecting a sequential increase of 45% from 149 million units of handset baseband chips shipped during the third quarter of 2020 and a 11% increase from 196 million units shipped year over year.

- Our base station and IoT product shipments reached a second sequential all-time record high of 268 million units, up 34% sequentially and up 63% year over year. Of the 268 million units, Bluetooth was 187 million units, a new all-time quarterly record high.

As for the year

- Our total shipments increased 27% year-over-year to over 1.3 billion units, an all-time record high and which equates to approximately 42 CEVA-powered devices sold every second in 2020.

- Annual shipments of handsets was flatish year-over-year at 575 million devices. After a slow start to the year, handset shipments from our large China-based customer grew significantly in the second half of the year.

- Base station and IoT product royalty revenue continued to grow and reached a new record level of $22.3 million, up from $13 million in 2019 and $8.9 million in 2018. In terms of units, base station and IoT product unit shipments were up 60% year-over-year to 750 million units.

- Overall, we surpassed the $100 million total revenue milestone for the first time. This significant accomplishment was achieved as a result of all-time record high licensing and royalty revenue and we are very proud.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

As for the balance sheet items

- As of December 31, 2020, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were $160 million. We did not repurchase any shares this quarter and have approximately 498,000 shares available for repurchase.

- Our DSO for the fourth quarter of 2020 was 48 days.

- During the fourth quarter, we generated $6.8 million of cash from operations; depreciation and amortizations were $1.5 million and purchase of fixed assets was $0.4 million.

- At the end of the year, our headcount was 404 people, of which 335 were engineers, slightly higher than a total of 398 people at the end of September 2020 and 22 over 382 people at the end of 2019.

Now for the guidance 

We expect 2021 to be another growth year for CEVA as the momentum in our business continues. We are forecasting total revenue to be just over $106 million for 2021 with growth in both royalties and licensing. Specifically, in regard to the royalty revenue forecast, we are taking a “wait and see” approach, as the semiconductor industry is experiencing extended lead times for chip orders and lean inventories which is expected to last through the first half of the year, at least.

Our licensing business continues to be solid with growing opportunities in 5G, Wi-Fi 6, TWS earbuds and automotive, as Gideon earlier elaborated. We are targeting another record year for licensing, which will set the stage for additional new streams of royalties in the years to come.

On the royalty front, we are expecting a decline in royalties from a leading smartphone OEM who has switched to another baseband supplier for its recently launched 5G smartphone lineup. With that said, we do maintain our presence in its 4G smartphones that are still expected to ship in volume this year. We also see continued progress for our China-based customer, who has recently regained good momentum in low cost smartphones for emerging markets, and has also recently launched its first CEVA-powered 5G chip in China. In our base station and IoT product category, we expect to continue to outgrow the markets we are targeting. Overall, we believe that our new royalty growth drivers will more than offset the decline in royalties from the 5G smartphone supplier switch.

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

On the expense side, we forecast approximately $3 million additional expenses in 2021 versus 2020 that relate to the devaluation of the U.S. dollar compared to other currencies that we use (both the Israeli Shekels and Euros).

- On COGS, we expect higher non-GAAP expenses of approximately $0.5 million due to more sensor fusion chip sales and other project expenses.

- On OPEX, with our strong licensing execution in 2020 and even stronger expectations for 2021, we will continue to support these new customers and reinforce our leadership with disciplined investments in R&D. Overall, non-GAAP OPEX increase will be approximately $6 million, half of it ($3 million) attributable to FX, as I stated previously.

- Equity-based compensation is forecast to be approximately the same as 2020, around $13.3 million.

- Annual gross margins are forecast to be similar to 2020, in the region of 89% on a GAAP basis and 91% on a non-GAAP basis.

- Interest income is forecasted to be lower than 2020 due to lower interest rate environment, at $0.6 million per quarter.

- Taxes are expected to be higher due to higher taxes in France for our RivieraWaves business. Approximately 22% of pre-tax income on a non-GAAP basis. This is compares to 2020’s level excluding $3 million tax expense due to withholding taxes which cannot be utilized in future years.

- Share count for 2021 is expected to be approximately 23.5 million shares.

Specifically for the first quarter of 2021

- Gross margin is expected to be approximately 89% on a GAAP and 91% on a non-GAAP basis, excluding an aggregate of $0.2 million of equity-based compensation expenses and $0.2 million of amortization of other assets associated with the Immervision investment.

- OPEX for the first quarter of 2021 is forecasted to be slightly higher than fourth quarter of 2020. GAAP-based OPEX is expected to be in the range of $23.2 million to $24.2 million. Of our anticipated total operating expenses for the first quarter, $3.1 million is expected to be attributable to equity-based compensation expenses and $0.6 million to the amortization of acquired intangible assets associated with the Immervision investment. Non-GAAP OPEX is expected to be in the range of $19.6 million – $20.6 million.

- Net interest income is expected to be approximately $0.6 million.

- Taxes for the first quarter are expected to be approximately $0.5 million on both a GAAP and a non-GAAP basis.

- Share count for the first quarter of 2021 is expected to be 23.3 million shares.

Operator: You can now open the Q&A session

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CEVA, Inc. Q4 & FY 2020 Financial Results Conference Call - Prepared Remarks :: Feb 16, 2021

Wrap Up: Richard

Thank you for joining us 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-K and accessible through the investor section of our website at https://investors.ceva-dsp.com.

With regards to upcoming events, we will be participating in the following virtual conferences:

- Susquehanna 10^th Annual Technology Conference, March 9^th to 11^th.

- Roth Virtual Conference, March 15^th to 17^th.

Further information on these events and all events we will be participating in can be found on the investors section of our website.

Thank you and goodbye

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