Good morning and welcome to the CEVA, Inc. First Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Investor Relations and Corporate Communications, please go ahead.

Thank you and good morning everyone. Welcome to CEVA’s first quarter 2014 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 the highlights from the quarter. Yaniv will then cover the financial results for the first quarter of 2014 and supply guidance for the second quarter. 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. Forward-looking statements include, our financial guidance for the second quarter of 2014 and third party qualitative data reference here in, anticipated mass production time tables by CEVA’s customers and we expect them to result in royalty revenue growth, licensing growth opportunities in the audio embedded vision and mobile infrastructure and networking spaces, benefits for CEVA’s business resulting from China’s mass deployment of LTE and increased shipments of low cost 3G phones, the licensing deals signed in the last 12 months to 24 months translating into new royalty revenues. The anticipated Israeli R&D grants and CEVA’s buyback program illustrating the company’s long-term growth prospects. 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 speed and extend of the expansion of the 3G and LTE networks, 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 speaks as of their respective dates. With that said, I would now like to turn the call over to Gideon.

Thank you, Richard and welcome everyone. I’m pleased to report a strong start for 2014 for our total revenue and earnings per share exceeding our guidance. Total revenue for the first quarter was $13.7 million, up 13% compared to the first quarter of 2013. Licensing and related revenue were significantly above our expectations at $7.9 million due to the execution of comprehensive agreement with key customers. Royalty revenue was in line with expectation reflecting a seasonal inventory adjustment of handsets in preparation for new product releases. During the first quarter, we concluded four new license agreements, three of the agreements were for our CEVA DSP cores, platform and software and one for our SATA/SAS technologies. Geographically, three of the license agreements were in the U.S and one was in Asia. Let me now expand on two key agreements signed in the quarter. The first noteworthy agreement that we signed during the quarter is with a major semiconductor company that we are looking to strengthen its cellular networking position by adding software-defined radio-based processing for LTE and WiFi that will be enabled by our CEVA-XC DSP platform. High data rate technologies in the form of LTE and 802.11ac, along with the proliferation of new usage models such as the internet hosting are driving OEMs and network operators to rapidly install new network. These opportunities attract major semiconductor companies who were not previously part of the infrastructure ready chain to enter this lucrative space by leveraging our DSPs. This important agreement further strengthened our market position in wireless infrastructure where we already have several design wins with major OEMs and semiconductor companies. It is another step towards our strategic objective to becoming the [D-Factor] DSP provider for the next generation of wireless infrastructure. The second enrollment of note relates to the handset…

Thank you, Gideon. I will start by reviewing the results of our operations for the first quarter of 2014. Revenue for the first quarter was $13.7 million, a 13% increase compared to the same period last year. The revenue breakdown is as follows; licensing related revenue it’s an all-time record high of $7.9 million reflecting 58% of our total revenue. This is 57% higher on a yearly basis. Royalty revenue was $5.8 million reflecting 42% of our total revenue, down 19% on a yearly basis. Our quarterly gross margin was 92% on both GAAP and non-GAAP basis. Non-GAAP basis include approximately $58,000 of equity based compensation expenses. Our total operating expenses for the quarter were $10.4 million, including higher R&D headcount and related benefit expenses. Total OpEx included an aggregated equity based compensation expense of approximately $1.4 million. And our total operating expenses for the first quarter excluding equity based compensation expenses were $9 million, slightly above the higher end of our guidance. U.S. GAAP net income for the first quarter was $2 million and fully diluted net income per share was $0.09, an increase of 16% and 13% respectively compared to the first quarter of 2013. Non-GAAP net income increased by 16% to $3.4 million as compared to the same period a year ago. Non-GAAP fully diluted net income per share increased 23% to $0.16 per share as compared to the same period a year ago. These figures exclude approximately $1.4 million and $1.2 million of equity based compensation expenses net of taxes for the first quarter of 2014 and '13 respectively. Other related data. Shipped unit by CEVA licensees during the fourth quarter of 2013 were 212 million, down [13%] sequentially and down 25% from the fourth quarter shipments of 2012. Of the 212 million units shipped, 191…

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question is from Gary Mobley of Benchmark. Please go ahead.

Good morning guys.

Good morning.

I apologize in advance, bad voice. I was hoping to dive a little bit deeper into your licensing activity. I know that number of deals signed in the just concluded quarter was only four and that’s a couple of below your historical average to get to your record level licensing revenue. I am just wondering what’s driving the increase in the average deal size. Was it recognition of some sort of deferred revenue from a prior license deal? Does it have to do with the wireless infrastructure licensee fee for CEVA-XC that was signed recently, any explanation will be helpful? Thanks.

Okay. Gary, this is Gideon. Well, it’s not the deferred revenue, let’s put it straight. Second thing, the number of deals is not an indicative for the business itself. You know that we are handling prospect -- I would say even in terms of prospect for (inaudible) basically and we don’t have full control of when these deals will be signed. Specifically to the quarter out of the deals, I mentioned two I think very important deals. The wireless infrastructure that we started in March could be basically the D-Factor standard and we have technologies overly incumbent, which is [TI]. And this is a company that is well known and wants to get to our CEVA-XC platform into what is called the access meaning in combination of baseband processing and base station and digital phone and other things. I think very important agreement and eventually it was also sizable. And the other agreement is in the handset space, which you know that the handset space is a consolidated market; you don’t have the activities other than which I mentioned in the LTE context in China. In China you do have customers that are interested in developing the LTE modem, but in general when it comes to the incumbent when it comes to the big names those that are opened to use outside DSP (inaudible), we do acute they don’t. And this was an example of an entry point to a company that didn’t use our DSP. And we are now working with them on the context of CDMA 2000. It’s not beyond the CDMA 2000.

Okay. Just to clarify this handset chip licensee. Is this is a merchant licensee and what type of market share we’re talking about those licensees, mid single-digit?

Yes. It’s a merchant chip company; they have a very big volume. What they are doing and here it’s now a company that we hope to see. But what they are doing is they’re building this World Phone. And eventually it's a platform. So they’re going to use the same chip across all their shipments and then the volume will be big.

Okay. And on the royalty front, you mentioned the first half of 2015 is being perhaps the first time period when you start seeing some diversity away from just baseband units. I’m hoping that maybe you can characterize or name some of the applications that you anticipate driving some diversity in royalty units in the first half of the year and give us some sense of the magnitude of that additional contribution? And that's it from me. Thanks.

That's a good question. First of all, something that is important to notice in the context of LTE. The LTE is SoC, it's a system on a chip and we have DSP [island] not just a baseband DSP island, you have audio DSP island and you have imaging and vision DSP island and also in the baseband portion, we can do 3G, we can do the LTE, we can do CDMA2000 is one of the example. So, when it comes to the royalty, what it comes to [broadband] we can have in the beyond baseband in the context of royalties. So, it will be audio platform. We have imaging and vision, people are doing and this will expect us to believe that I am extremely surprised how fast people are deploying our MM3101 in their SoC. It’s much faster data use. And I can understand it because baseband takes more time because of the certification, but here is (inaudible) so we are going to see MM3101 and range of applications starting for Smart Grid and the connectivity and you name it. I mean people are using our XC platform and the other platform to a range of communication applications. Gary?

Okay. That’s it from me. Thanks guys.

Thank you.

Our next question is from Suji De Silva of Topeka. Please go ahead.

Yes, good morning, guys. First of all on the large handset license when you have now, can you talk about the potential to expand that relationship beyond the CDMA2000 technology you’re going to be offering. Is that a likely or will that be a challenge?

I hope -- your line is pretty bad, but I hope I understood the question about CDMA1000. So I want to go back to what I answered to Gary. When it comes to LTE in general, this is an SoC, and in this SoC, we have various DSP item, meaning used case where you use the DSP. So it could be a CDMA1000, it could be 3G HSPA, it could be LTE, it could be audio, it could be vision. Now, at the end of the day, it would be one SoC that will be sold in LTE smartphone. And I mean, if they're going to deploy it all over the place and if this customer, I mean this is a dominant player, but there is highly likelihood, this customer will manage to get sizable share, the fact that we do CDMA1000 does not reduce the volume, because we will be -- it will be part of an SoC to go to all the LTE chips.

And to add to Gideon what said, at the end of the day, we will of course try to enrich our offering with that specific customer beyond just the CDMA point. I think that was the question, and that's obvious, this is the first time we got our foot in the door. Now, the next challenge for us is really to try to open the door a bit wider than just CDMA. But for sure, this is an all incremental royalties, because from now until today we have had no for royalties for whatsoever from baseband from that customers. And their engineers are using our tools, gaining our technology and acquainting with our technology. So there is good opportunity in Europe that we could make more business out of that new customer.

Great, thanks. That was my question. You guys got it correctly. And then also Nokia, what’s your exposure to the remaining, I guess feature phone units there?

It’s still a sizable volume there, you know that they are -- that income, there is no specifically but there -- the tone of their result was not good in the feature phone and we have exposure there.

And then my last question is it seems like if I do math, your ASP seems stable at this point, is that the trend you expect or ASPs have the opportunities have to improve going forward, can you talk about that trend? Thanks.

Sure. Let me take that up. On the sequential basis, it’s flat; on year-over-year basis, it’s up about 8%. And that is in line with our expectation that as long as we get more of the smartphones and less of the feature phones mix that will increase ASP and of course the royalty contribution if the volume from smartphone is strong enough. So the answer is yes and we are looking forward to the later part of the year mainly from the LTE and continued deployment in 3G and -- sorry, in smartphones in which among them are 3G and LTE.

Hey, thanks Gideon, thanks Yaniv.

Thank you.

Our next question is from Joseph Wolf of Barclays. Please go ahead.

Thank you. This may be related a little bit to the first question, but if I look at the guidance and take the mid-point of the sequential decline of the royalties and the overall number, it looks like you are looking for kind of an equal split on licensing and royalty. And I know you guys are typically conservative on the licensing but if you take a look at what happened in the first quarter, could you just describe or give us a little bit more color about where you were surprised, was it the size of the deal; was it the number of customers looking at potential deals, and how that developed across the quarter and whether the second quarter guidance is just now when if you get too excited about the further opportunity?

So Joseph, if I wouldn’t be -- I wouldn’t say that we will surprise. Eventually we are happy with these kind of deals. And in licensing, you never know how, what’s the pace and how this will converge during the quarter itself eventually to the end of the quarter. So, looking in licensing, I think the way to look into this one is important of the customer, the goal of getting large deals or expanding the business for this. The mobile infrastructure deals, it’s a nice [foundation] because newcomers that wants to go and there are newcomers that wants to come into the space cannot ignore the fact that we are almost with -- we are getting to be engaged with all the key players, so if you will encourage other people to come in license. And eventually hopefully we’ll be dominating the market. The handset space I spoke already, the answer that I spoke already, the implication which is also important. So the licensing is -- the pipeline is good because we have broader product line to offer. And in the last few quarters, it translated to above the norm. Hopefully it will continue, but you never know in this kind of business.

And therefore, to add to that, therefore we’re keeping as we said the mid range of our guidance in licensing which has been for while $5 million to $6 million and hope to be better, but that’s I think the better and conservative approach.

And then just a follow-up on the infrastructure win. I know some of these infrastructures when you get into the base stations you've got multiple DSP opportunities with significantly higher ASP opportunity. Is that the story here, can you give us a little bit more color about the actual case usage for the win that you?

Yes, exactly. First of all, when you speak about the multiple curves, you speak about higher ASP bell curve. And the mobile infrastructure will eventually be a big market in two aspects. Number one, as opposed to 3G network in the LTE, you have to do to add what is called small cells, our people call it femtocell, picocell, or microcell. So the number of chips is much higher. That's one thing. That other thing, the other areas which I mentioned also in my prepared remark about digital front-end and [bell curve] these are areas that in the past were not part of the DSP like we are doing, like our DSP platform. And now with all the program ability that you need, they're looking to add DSP like our CEVA-XC. So we have speaking about a much, a larger market at higher ASP.

Higher in these markets could be 10s of cents, not few but 10s.

Great. Thank you, guys.

Thanks Joseph.

Our next question is from Anil Doradla of William Blair. Please go ahead.

Hey guys. So just to clarify for the June quarter royalty, you are assuming an uplift in ASPs or stabilization in ASPs?

We didn’t get over the core trend plan so that question, to answer that question well I don’t see a reason for it to go down, but I really don’t have the insides right now because we are still pretty early in some of the royalty reports we get an estimate and now the detailed number of the share commitment and all that. So in principal we see that the smartphone continue to increase sales, the non-baseband part in our Q2 guidance versus last year’s second quarter is pretty flattish. So we don’t really see any headwind coming from non-baseband and the major reason for the decrease in royalty is just the feature phones, which we have really said we have first been experience in second and its okay with their focused new roadmap, which has some short-term application of course in the market on us.

So switching gears to the wireless infrastructure, who are you replacing, and what are the key areas where you’re being used?

So the incumbent of (inaudible) the dominant also for scale those don’t have any now at DSP roadmap. So companies that are in this area, first of all the OEMs that are already there, find our DSP significantly better and high performance we are looking for more advance. So that’s one thing and that (inaudible), when you go to other new LTE related phone factor and small cells and backhaul and wireless backhaul and digital front end here they are new comers they are semi-conductor companies, that are strong and building an SoC and universal SoC and there are many entering into this space and they need DSP like we looking up for.

So, Gideon when you look at the total addressable market, I think Freescale and Tein provided most of the DSPs, I mean we're talking about at least on the chips several hundred million dollars now, you would get 1% to 2% of that. Is that the right way of looking at it or how do you look at the TAM?

The TAM can be the range of $400 million to $500 million, if you sum up everything. And then the ASP is higher significantly higher. Now it depends how many calls in the range in the system, in the SoC, but the voltage is higher.

So $400 million to $500 million in DSP chips, but from your point of view are you talking about 1% to 2% of this or from a CEVA point of you?

Yes, that could be our overall inline with some of the models.

Okay, great. And final question is, what was your calculation for the baseband TAM in the first quarter?

We had 31% or 191 million phone out of 617 million strategy analytics forecasted. This is Q4 shipments which we report in Q1.

Thank you very much.

Thanks Anil.

And our next question is from Jay Srivatsa of Chardan Capital Markets. Please go ahead.

Thanks for taking my question. Gideon, it seems to be some sense that at the higher end, the smartphone market might be weakening partly due to saturation, partly due to some shifts from U.S. and Europe into China. Help us understand, how do you see your larger licensees performing with this transition happening in the market?

Jay, let me if I may expand the scope of your question to a bit wider scope going to what happen in 2013, 2014 and 2014 going forward. So when it comes to 2013 and you look on our customer shipments, our smartphone shipment grew 79% in 2013. This is compared to 43% for the overall smartphone market. So you see we are ahead of the -- significantly ahead of the market in terms of smartphone shipments. Now in feature phone on the other end it’s a decline market and we have the dominant position there and that’s the reason that we are not, I mean this outstanding ramp in the smartphone is not seen in our total revenue, because the feature phone is decline. Now why feature phone is declining, feature phone is declining because at the low end or the prices of the feature phone are not coming down, the prices of the smartphone, even the low cost smartphone are not coming down to the feature phone level, which is $30, $40, this is the thing you don’t know, I mean if you look, we look on our customer shipments and these are in the low mid-tier on the smartphone, the prices are between $80 to $150. That’s the reason that the feature phone people are holding buying feature phone, because they are waiting that the prices will go down, will come down, and they are holding feature phone and that’s the reason our feature phone shipments decline. Going forward to 2014, we see this is for expanding the low cost tier, the low cost powerful the smartphone in which we are specializing. So the Spreadtrum that I mentioned in remarks, the Spreadtrum $25 this is a smart feature phone. This is something that can move those feature phone people to start buying a smartphone and eventually the volume go up from those people. And then it comes to LTE which is also a matter of price reductions and I mentioned also the context that there are Chinese semiconductor companies that are building the LTE chips for the China market. And if I’ll take the case study of tablet and what happened to company like all Elwin and Alchip that basically ships more than Qualcomm or anybody else in the tablet space. In this case study you will tell those guys will take the share and control the China market. So overall our customers are not in the high-end, I mean high volume or shipments in the high-end. We are in Galaxy S5 we are in those flagship types of phones, but our bread and butter is there in mid low-end and that’s where the volumes are.

Okay. Following up on your comment about Spreadtrum with the ASPs of these 3G phones coming down significantly, are you concerned about your own royalty stream that could emerge as the prices depress in the 3G side?

See the value that we are providing for 3G as far as is significantly higher than 2G. And that’s the reason that the prices are significantly higher than the feature phone 2G that we use to be.

Okay.

Generally when we look at the year-over-year comparison, we don't really have that bigger than issue at all in pricing and now in smartphone because of the integration it is not just the modem, but also the application processor in most cases. So that's very strong anchored that helped us more feature and Gideon explain Quad Core arm is inside, more DSPs, WiFi, the more you add content into the smartphone chip, this is something that we did not have at all in the feature phone segment and this should help us going forward.

Okay. Last question from me Gideon, if I step back here and I look at CEVA’s earnings and revenues over the last 7, 8 quarters, you’ve been operating somewhere in the $10 million to $14 million range. With a lot of the license, newer licensing deals you’ve signed, when do you expect to get back on a continuous path towards growth both in revenues and earnings?

Well, there are two elements in this. Number one is the pace of the royalty growth again, I mean the royalty eventually was a decline and that’s the reason that our revenue declined in the last let’s say year, year and a half. And let’s come back to what I said about the feature phone. Right now the feature declines and what Intel was saying in their earning call that they are basically deemphasizing feature phone and focusing on 3G and LTE is another indicative. When prices of low cost smartphones we will get to the level that people are speaking, they are not there yet, $40, $30, the decline in feature phone will stop, it will be replaced with smartphone and will gain both units and higher ASP but the timing of that is not clear but it’s ongoing because we see all these chips, new chips coming. So one element in our return to growth is some kind of stabilization in the feature phone unit decline which will replace the smartphone, it’s ongoing. You see, I gave you the numbers, 79% in smartphone last year versus the market of 43%; it’s all some kind of local. The other thing is that the deals that we signed in non-baseband areas or the embedded vision, that’s design cycle; we hopefully will see few early [belts] by end of the year, and in 2015 we hope to see more.

Thank you.

Thanks Jay.

Your last question is from -- a follow up from Gary Mobley of Benchmark. Please go ahead.

Hi, guys. Looking at your guidance, it looks as though based on the OpEx that you are running at right now and you are guiding for the second quarter, you’re expecting strong licensing revenue but you are not confident to put that in your top line guidance. Could you give us what the puts and takes there are in terms of your budgeting thought process and then as well maybe the trajectory of operating expenses for the balance of 2014?

Yes, let’s -- when we start a quarter, you’ve seen the last two quarters were on a pretty strong note, you don't really know what deals can sign, which deals will materialize to signature and revenue recognition. A good example the last two quarters is that sometimes we have some more and larger number of deals with smaller size, sometimes we have fewer deals with larger size, it could be a multi use, it could be a single use based on actual customer, their design and activity and their needs. So, that varies. And this was true for every quarter including second quarter. As Gideon said, we have a quite few long lists of prospects, some of them are in evaluation, some we're discussing and showing the benefits, different stages. We take that into account, we try to analyze it and come up with for guidance of 5 to 6 is reasonable, whether it’s -- if it's with all 100% sure and we were at a higher number, I would have given it. Today, there is no reason to wait, because those deals are not closed yet. We are -- we stick with our traditional guidance and hope to make those numbers or better. But there is always a risk that until, if you would sign and recognize, it's much more difficult to forecast. And so, I think that from a revenue point of view, we're not guiding anywhere different on the licensing than we have for long time now and try to make that number, sometimes with very nice success, sometimes with even less success. And the royalties, we pinpointed the exact issue that we have with the feature phones in the market dynamics it’s we have which network changes in the market specifically with Intel on the rest of the pieces are in good shape. So smartphones are up, the non-baseband are pretty similar to last year, so we don’t have that headwind anymore, so we really actually did not have the Intel change in their focus and then we would need to have seen that type of guidance from the feature phone perspective, so.

Okay.

At least that’s on the revenue side.

Okay. On the OpEx side, just to be clear the R&D tax credit that is not incorporated into your OpEx guidance for Q2?

Right, we are keeping Q2 around $9 million just because we are not sure yet that those $600,000 we’ll receive in second quarter or third quarter, one of the two quarters will be lower by $600,000, but we don’t have good visibility when that check will arise.

Okay. You ended the quarter with 221 employees is that correct?

211.

211, by how much did that increase?

It was in the 205 if I recall last quarter and just below 200 about a year ago.

Okay. I’m just trying to get sense of what’s driving the elevated OpEx right now, is it…?

R&D. Mainly R&D not SG&A, it’s not going to be much different than last year. These are more employees because of the new product line, because of the tools that we need to develop to those product lines all around R&D enhanced product offering and I think that’s actually $9 million minus few hundred thousand dollars when you get some of these grants that we want every couple of quarters that should be a right level to think for now.

Okay, all right. That’s it for me. Thanks.

Thank you.

And this concludes our question-and-answer session. I’d like to turn the conference back over to Richard Kingston for any closing remarks.

Thank you, Emily. Thank you again for joining us today and for your continued interest and support in CEVA. We will be attending the following upcoming conferences, I invite you to join us there. Oppenheimer’s 15th Annual Israeli Conference in Tel Aviv on May the 11th, the Benchmark Company One-on-One Investor Conference in Milwaukee on May 29th and William Blair’s 34th Annual Growth Stock Conference in Chicago on June the 11th. Thank you, and goodbye.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.