Good morning and welcome to the CEVA, Inc. Q4 and Year End 2013 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I would like to turn the conference over to Richard Kingston. Mr. Kingston, please go ahead.

Thank you and good morning everyone. Welcome to CEVA’s fourth quarter and annual 2013 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA; and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the quarter and year. Yaniv will then cover the financial results for the fourth quarter and annual 2013 and provide guidance for the first quarter of 2014, and general qualitative data for 2014. I will start with the forward-looking statements. Today’s conference call contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. These forward-looking statements include our financial guidance for the first quarter of 2014 and qualitative data for 2014, optimism about growth opportunities beyond the cellular baseband markets in including imaging and vision, audio and voice, and other next generation products. Positive outlook for the cellular handset markets, forecasts about CEVA’s customers and the expectant result in growth and royalty revenues and CEVA’s buyback program illustrating the company’s long-term growth opportunities and earnings leverage. The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies 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 products incorporating our technology to achieve market acceptance, the expansion of 3G and LTE networks, the effect of intense industry competition and consolidation, global chip market trends, the possibility that markets for our 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. With that said, I would like to now hand the call over to Gideon.

Thank you Richard and welcome everyone. I am pleased to report a strong fourth quarter result which exceeded our internal expectations. This strong performance was driven by strong licensing growth, across our product line which I will elaborate on shortly. Total revenue for the fourth quarter was $14 million, up 40% sequentially and up 8% on a year-over-year basis. Licensing and other revenue was $7.3 million an all-time record high for CEVA, up 84% sequentially and 52% on a year-over-year basis. Royalty revenue was $6.7 million, a sequential increase of 11% and year-over-year decrease of 18%. It reflects a continued transition from feature phone to low cost Smartphone for emerging market and from pre-holiday production rent of mobile game consoles. During the quarter we signed 11 new license agreements, the highest numbers of deals signed in a single quarter in the last seven years. Nine of the agreements were for our CEVA DSP cores platform and software, and two for Bluetooth connectivity technology. Geographically 10 of the license agreements were in Asia including Japan, and one in Europe. Our record licensing performance during the quarter is outstanding for a number of reasons. In addition to being the highest licensing quarter in our history, it reflects the continued strong adoption of our technology for a whole new range of application beyond our traditional cellular baseband market, from customer application standpoint, three of the agreement are in baseband, three in imaging, two in audio, two in connectivity, and one is a foundry customer. The diversification, both in terms of customer end-markets demonstrate the strength of our current technology portfolio and our ability to serve broader customer base. Secondly the profile and caliber of customers that are adopting our technology for these new markets are exceptional, with five of the 11 licensing agreements…

Thank you, Gideon. I will start by reviewing the results of our operations for the fourth quarter of 2013. Revenue for the fourth quarter was $14 million, 40% sequential increase and an 8% increase compared to the same period last year. The revenue breakdown is as follow; licensing and related revenue was an all-time record high of $7.3 million reflecting 52% of our total revenue and 94% and 52% higher sequentially and on an annual basis respectively. Royalty revenue was $6.7 million reflecting 48% of our total revenues, up 11% sequentially and down 18% on an annual basis. Our quarterly gross margin was 90% on U.S.GAAP basis and 91% on non-GAAP basis. The Non-GAAP basis exclude approximately $89,000 of equity based compensation expenses. Our total operating expenses for the quarter were 9.8 million, including higher R&D grant contribution partially offset by higher employee benefit provision. Our total OpEx included an aggregated equity based compensation expense of approximately $1.4 million. Our total operating expenses for the fourth quarter excluding equity based compensation expense were 8.4 million reflecting related to higher end of our guidance. U.S. GAAP net income for this fourth quarter was $3.1 million and then the fully diluted net income per share was $0.14, an increase of 14% and 17% respectively compared to the fourth quarter of 2012. Non-GAAP net income increased by 4% to $4.5 million as compared to the same period of the prior year. And our non-GAAP fully diluted net income per share increased 5% to $0.20 per share as compared to the same period for the prior year. These figures exclude approximately $1.3 million and $1.5 million of equity based compensation expenses net of taxes for the fourth quarter of 2013 and ’12 respectively. Other related data. Shipped unit by CEVA licensees during the fourth…

Thank you. [Operator Instructions]. And the first question comes from Gary Mobley with Benchmark.

During your prepared remarks, did you mention Gideon that you expect royalty revenues to grow in fiscal year ‘14? The Benchmark Company: During your prepared remarks, did you mention Gideon that you expect royalty revenues to grow in fiscal year ‘14?

Yes, that’s what we anticipated. It’s the same parameters that create a growth that if we want to go back to 2013 we have basically two headwinds. One is our legacy, consumer electronic business and the other part of it is that the contraction of the feature phone that gradually being replaced with Smartphone and in this we experienced in 2013 a significant growth in smartphone. By the way, in smartphone we including both EDGE, 3G and LTE because also EDGE Smartphone it’s a Smartphone, it’s the same chip is just, you don’t have the 3G network that is not available in those emerging market. But in general we experience significant growth but there was also a contraction unit wise was higher than the smartphone. Going into 2014, we believe that when it comes to the consumer electronic we are more or less in the base line there, of course we have the seasonality that we all know about the consumer electronic but we are more or less in the base line there and we know all about the smartphone that is going to grow significantly and the speed of course is higher and that’s the base for the growth in 2014.

So assuming the normal seasonality in the June quarter, your broad fiscal year ’14 royalty comments would indicate that you have to grow royalty revenue about 20% sequentially for each of the last two quarters and that’s well above normal seasonal trends. So, is that about seasonal ramp function of 4G shipments or diversity into other end markets? The Benchmark Company: So assuming the normal seasonality in the June quarter, your broad fiscal year ’14 royalty comments would indicate that you have to grow royalty revenue about 20% sequentially for each of the last two quarters and that’s well above normal seasonal trends. So, is that about seasonal ramp function of 4G shipments or diversity into other end markets?

We don’t want to specifically comment about the number of growth, it’s too early in the year. We don’t know exactly the pace of the smartphone but -- I mean we don’t need a dramatic unit growth, we need just small smartphone, the unique growth is smartphone should be higher than the contraction in the feature phone which was not the case in 2013.

Okay. Let me switch gears and talk about license revenue. If I recall correctly, your normal quarterly license guidance ranges between 4.5 million and 5.5 million, you average 5.6 million throughout 2013 and you’re guiding for 6.25 million in the March quarter. Are you in a position now to maybe raise the quarterly license guidance range and what are sort of dynamics that are playing out in the near term driving the results above that upper than that $5.5 million range. The Benchmark Company: Okay. Let me switch gears and talk about license revenue. If I recall correctly, your normal quarterly license guidance ranges between 4.5 million and 5.5 million, you average 5.6 million throughout 2013 and you’re guiding for 6.25 million in the March quarter. Are you in a position now to maybe raise the quarterly license guidance range and what are sort of dynamics that are playing out in the near term driving the results above that upper than that $5.5 million range.

Gary, this is a good question. I would like to take this opportunity and elaborate the [deals] about the Q4, because Q4 was a good quarter not just because of the revenue number but because of the fundamentals behind it and I mentioned them in the prepared remarks. In the quarter there was no -- any megadeal, there was no -- any customer contraction it's just a spread across all the product lines baseband, imaging, vision, audio, connectivity also a far first time [indiscernible]. So that's -- we are -- this is in line with what's our growth strategy. Now going forward, we are dealing here with applications that are emerging, just out. I think we met in CES, you saw those applications there, there is a lot of things happening in the areas that we are specializing in. But these are new areas and it's very difficult to know the pace of adoption there and design wins, and to some extent also to -- as you know the licensing business itself it means a lot of uncertainty. So overall we stick to our $5m to $6m comfort zone. But there is specifically, there could be -- we feel in the coming quarter that we have good prospects.

And the next question comes from Joseph Wolf from Barclays.

Thanks. Could you give us a breakdown as much as you will on the revenue mix of 3G versus feature and the unit mix as we start 2014?

Yes. So Joseph Wolf, we after evaluating the market and then we are coming up with a more accurate presentation of the shipment going forward. Gideon explained 2G, 3G, that's not necessarily the right way to look at the market but we need to distinguish between feature phone and smartphone and you’re seeing smartphones today that could be 2G, whether its EDGE, it would could be 3G and of course all the LTE are all smartphones. So, from now on there is breaking up this -- our business and the world and then the handset into those two categories and we don’t really care what’s the base, what is 2G, 3G, or 4G but whether it’s a feature phone or smartphone. And that could give you some interesting indications and then of course what we have sorted out for the entire year. Overall, we saw a feature phone decrease of about 200 million phones, 210 to be more precise, down from 820 million to about 600 million in feature phones that we powered last year. On the other hand on the smartphone, we saw an 80% increase from 188 million to north of 320 million smartphones. And as Gideon mentioned the smartphones has different pricing, overall I would say the average between -- the average ASP edition for CEVA between a feature phone and a smartphone is 2X. But of course the more LTE and the more sort of high end this would be 2X, 3X and even 4X on the pricing as we go high. So, the unit contraction on feature phone and this is what we alluded earlier was more dramatic than the smartphone increase, but the smartphone is much higher ASP for us as we go along. From a ratio point of view, it’s pretty much 54% feature phone and about 46% smartphone, that's true also for the annual basis. And also on an annual basis, the revenue is for now 2013, was very similar between those two segments. But we are going to focus on and guide on and continue to monitor is really smartphone versus a feature phone. And the more trend from this 600 million that we already powered last year towards the smartphone is going to add us more ASP and of course much more market share in those interesting type of segment.

Okay, that’s actually very helpful. And then I guess if you look at the timing and all these new and emerging opportunities, do you expect much or any revenue, I know some of it’s -- it’s obviously depended on success in the marketplace, but is -- are we expecting first revenues in 2015 or could there be something in the end of the year? And then how would that fit into the whole ASP story that you just described?

On the non-basement side, right.

On the non-basement, all the new opportunities. And I guess are they different by end market?

They all different not the end market because if you take the audio and imaging division, you go to French smartphone, but it is incremental to our basement traction there. The royalty is still higher. The end market is bigger because we are covering this product areas like automotive, like PC, like tablets and all the areas that people are speaking about what is called application processing. So, we are speaking about higher royalty ASP, we’re speaking about a larger end market and we are speaking about more customer diversity. And those are the fundamentals of the strategy that we want to leverage. We don’t want to be depended on single customer or single market.

Thank you. And the next question comes from Matt Robison with Wunderlich Securities.

First of all Gideon with -- I’m intrigued by the success of your imaging platform. When you look at these customers, do you see a well-defined product integration and ability to deliver something to a consumer in relatively short order or are we more on the experimental stage? How do you look at those licensing deals in terms of their make market cycle versus maybe some more familiar features that we have?

Well certainly important experimental is as far as I can see there are two types of customers, one is the OEMs that are really struggling with how to differentiate and they’re building their chip for these purposes. And then there are companies that want to not necessarily those big [AP], not now these big AP guys that -- those AP guys but those companies that are in the socket of smartphone, people are not aware about it but they are -- they do -- they are part of the sensor pipeline and they do their own chip. This is in my opinion those are the pioneers that are setting the direction. Going forward and based on the pipeline that I see, these technologies will be integrated as part of the application processor. And when the application processor is basically a disruptive technology, this will take them further to DPV and automotive. We see a lot of similarities between all those new markets. But the usage method in the automotive or DPV is still in early stage. So to answer your question, the smartphone sets the direction, the customer right now is OEM and the complementary, those that are near the sensor but going forward these will be integrated.

Okay. Completely different topic, do you expect to expand your buyback program?

I think we mentioned in the prepared remarks we have additional 1.2 million shares. If you look at the last two years we returned about $47 million and we are at $152 million today so we will continue to be active on the buyback front.

Yes, well, I was interested if you are going to expand from that 1.2 million.

Let's take it one step at a time, and we have some work to do related to the 1.2 million as well.

While you're on the phone, comment on how many units for 3G and LTE?

No, so this is back to our prior explanation, out of the 212 the ratio is about 54% feature phone and the 46% are smartphone. Q4 is pretty much in line with the full year as well.

Okay. What was 3G and LTE?

No, we are looking at it a little bit differently as I mentioned just earlier. We don't really -- I'm not going to continue to monitor 2G versus 3G because it's really more of a smartphone versus a feature phone. The high-end smartphone could be as expensive as low-cost feature -- low-cost smartphones and therefore the ratio doesn't really matter other than looking at a feature phone versus a smartphone. So I think that's the new dye of data that we are collecting and we are going to guide as we go along (multiple speakers).

What was operating cash flow depreciation and CapEx?

For the quarter $10 million was operating cash flow, depreciation around $200,000 and CapEx about $100,000.

Our next question comes from Suji De Silva with Topeka.

Hi, guys, nice job on the quarter. So first of all with the -- first of all, these new customers you're getting in new areas would you, Gideon, [need] expected OpEx or headcount increase to support the new applications that your targeting on a royalty basis.

Yes, overall if you look at the headcount from last year to this year the beginning of last year we were about 193 today we are about 207. All of the growth came from in R&D mainly a little bit in marketing and sales but mainly in R&D, and we have a few more open positions throughout this year. So we will be around the run rate of about 210-ish to 215 and a lot of it is contributing to the new product line.

And for the new customers do you need people specifically for each customer, just to understand?

No, it's the same business model. We come up with the platform, its standard and we offer that to different segments of the market, to different new markets as we talked about, we don't do any customization work or rarely do some customization work to change our course. They're pretty much off the shelf specifically to different segments of the market and different applications; audio, imaging and video baseband, Bluetooth.

Good, it sounds very scalable. On LTE, it sounds like Samsung would be one of the first guys to ramp in volume. What's your handicap on what percent of Samsung's newer platforms will be in-house baseband versus continue to use Qualcomm, and where else would you get LTE units from in 2014 and 2015?

That's the wild card for 2014. You can come up with any number. But usually, between 10% to 20% of Samsung shipments if you take the application processor is based on in-house technology. Now they are now integrating in one chip both the modem and the application processor. So if they keep this practice doing -- if they follow this practice in 2014, so we speak about the huge amount of volume, keep in mind that Samsung ships last year 400 million smartphones.

Okay, great. And then -- that helps, and then last question is an arrangement with foundry that you have this quarter. Is that new to the company, you working directly with foundries, have you done that in the past? And if so is there a broader implication of that kind of relationship versus the traditional customer relationship. Thanks.

That's a first-time deal that we signed directly with foundry. It's one of the known foundries, I cannot name it. We will probably do a press release shortly. But the idea is that we use their distribution channels to go to smaller size of customer. They provide both the distribution channel and the services for being able to manufacture in the foundry. And we, at least from our standpoint, we just get the license and the royalty.

Thank you. The next question comes from Vijay Rakesh from Sterne Agee.

Just a couple of questions. When you look at the new licensing can you talk about what percent was handset and what was non-handset?

Out of the 11 deals three are pure based on handsets, three are based then -- the imaging is three, two are baseband and two are handsets, audio are both -- one of them is handset so it's about six to seven.

Six to seven non-handset right?

No, six to seven is handset related.

Smartphone related as well.

Got it. Okay, got it. And another on the smartphone side I missed the color but the licensing that you are seeing here is that baseband and on the non-handset is it audio, are you getting any audio DSP and imaging is that what you mentioned?

Yes. Three imaging division, two audio and one foundry deal that's more global, so -- and two connectivity. So, basically out of the 11 only three are pure baseband.

Yes that's very good. And when you look at the mix of 2G and 3G and 4G shipments now how does that split up now on the unit mix and how do you see that -- do you see that crossing over by the end of the year?

Yes, Vijay, one of the things that confuses many and by the way us as well is that you have these feature phone and the smartphone and you have 2G feature phone and you have 2G smartphone and you have 3G feature phone and 3G smartphones. So what we decided in order to simplify it, overall the industry is moving from feature phone to smartphone, and the network whether it's a 2G, a 3G and LTE depends on geography. There are places where you have LTE you go to places like India you don't have really 3G but you still have smartphone. So we are changing the convention in order to simplify [our need] to everything to explain the trends in the market. So have the feature phone space and we have the smartphone space, and in the smartphone space it includes those even Edge smartphone which are from a network standpoint of 2G, now I think we said the numbers.

Yes, let me repeat the numbers Vijay as well so we get it right I may have mixed one with each other. On an annual basis we had one-third smartphone and two-thirds of the volume being feature phones, so the volume is much higher on feature phone and that's the trend that we are seeing the move toward smartphone. Q4 as a standalone quarter we were 40%, 60%, so, 40% smartphone and 60% feature phones. And we continue to see that trend that feature phones are decreasing out of the whole pie and smartphones are increasing. And as I mentioned it had at least a 2x type of ratio and pricing between the two then the faster we are getting to LTE through the Samsung and [Frisk] and spread through on the Intels of the world, the higher the ASP could be on those specific LTE-based smartphones.

Got it.

So I hope I got it right this time.

Yes, that's really helpful. And last question here when you talk about -- obviously good -- a lot of good licensing deals here and obviously there is a gestation period before some of these ramp, when do you see some of these start to show up, when do you start to see it more, when do you start to monetize that?

In the last two years we signed 25 non-baseband deals, we hope that a few of them or a couple of them will start production towards the end of this year and of course 2015 should be much more robust from that angle just based on the timeframe of getting into mass production.

Thank you, and the next question comes from Anil Doradla from William Blair.

Hi, guys, a couple of questions. When we step back and look at the big picture we are talking about two years, three years something like that, now my understanding if my memory serves me right about 20% of your revenues on the royalty side come from non-handset and clearly the imaging product line seems to be gaining good traction with significant customers. So walk us through a scenario where potentially CEVA becoming a -- kind of almost a non-handset-oriented DSP provider if some of these imaging and non-handset markets take off. Again volumes might be smaller but ASPs are higher, so do you see a scenario like that? Can CEVA evolve into a non-handset company or does -- what are the puts and takes and I have a follow up.

Anil, we definitely don't see us out of the baseband market. We have -- the baseband market we have a lot of opportunities there including penetrating to incumbents there, they don't have a DSP or use in-house DSP and we are in discussion with them and we see an entry point to get there. We have -- all the base station and small cell, these are all base station, it's not handset but it's an opportunity. The IOP, the machine-to-machine, the slim model, in general is a market that's evolving. And we see new players there that we are in discussions. So overall if you look ahead two or three years, majority of our royalties will be baseband and it's a big market, and we'll be there. You put it I think right that when it comes to imaging and vision and audio it's a much fragmented market, you don't have those mega customers that can ship 80 million or 70 million or 90 million units a quarter, but it's a more diversified market, the ASP is higher. And it's hard for me to tell you now exactly the mix that we are going to see in 2015, 2016. The only thing that I want to emphasize that it is incremental to what we are doing in the baseband, it's not a replacement.

Okay, good. And, Yaniv, I think I must have asked you this in the past but again rev recognition on the licensing, is there any thought process on stretching it out more like software recognizing revenues over a period of time rather than being it kind of a one-off thing resulting in perhaps a little bit more smoothness to the P&L.

No, not at this point of time. This is, based on our business line is not services, it's not too -- it's not an easy A type of business. It's real processors, it's a process that we do off the shelf that we give out to the customers, the license and can recognize the revenue up front. If we give and start giving more services and more work around it that could change the business model. I don't see that happening at least for now or in the near future, but it's always an option if we decide to change the business model a bit.

Thank you. And the next question comes from Jay Srivatsa from Chardan Capital Markets.

Thanks for taking my questions. Just one question at a high level, Gideon, a lot of attention is now being paid to wearables and over-the-top boxes from the likes of Netflix and Apple TV and stuff. Can you address this and say tell us whether you see CEVA being a player or participating in some of these products going forward? And when do you think some of that will start to become material for CEVA?

It's a good question. The main thing you mentioned wearable and the over-the-top, these are two categories of products that we have a different play there. In the wearable product the key is power consumption and DSP is the area that we use that's being used for -- is used mainly for power consumption, so things like audio, like sensor hubs, communication, of course Bluetooth. These are areas that we are exactly putting our focus there. Over-the-top, over-the-top one of the -- other than audio obvious things that you are familiar the interface, [inter-cause], perceptual computing meaning interface to over-the-top or TV via just [indiscernible] In voice recognition all those things, detection, voice recognition these are exactly the areas that we are covering with our imaging and vision platform and audio platforms.

Thank you. And at this time I would like to turn the conference back over to management for any closing comments.

Thank you very much. And thank you all for joining us again today and for your continued interest and support in CEVA. We will be attending the Mobile World Congress 2014 in Barcelona from February 24 to February 27, and you can also visit our website, the investor section of our website for a complete list of upcoming investor events. Thank you, and goodbye.

Thank you. The conference is now concluded. Thank you for attending today's presentation you may now disconnect. Have a nice day.