Good day, and welcome to the CEVA, Inc., Fourth Quarter and Full-Year 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's fourth quarter and full-year 2022 earnings conference call. Joining me today are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. This is Amir’s first earnings conference call with CEVA and I wish him all the best in his role as CEO. Before we start, I just like to take you through some forward-looking statements and non-GAAP financial measures. I’d like to remind you 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 statements regarding market trends and dynamics, including projected declines in the global semiconductor industry in 2023 and the long-term demand opportunity for our technology; our market position, strategy, and growth drivers, including with respect to licensing and royalties, Wi-Fi, 5G and software; demand for and benefits of our technologies; expectations and financial guidance regarding future performance, including our belief in our long-term royalty growth prospects; guidance for 2023; and our plans to host an investor event in the second half of the year. 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 the duration of the pandemic, including continued restrictions in China; 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 base station & IoT license agreements; the effect of intense industry competition and consolidation; global chip market trends; and our ability to successfully integrate Intrinsix into our business. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. In addition, we will be discussing certain non-GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our investors relations website at investors.ceva-dsp.com. With that said, I’d like to turn the call over to Amir who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard. Welcome everyone and thank you for joining us today. I want to start this call by sharing how excited I am to be part of CEVA, and to lead this incredibly talented organization through its next stage of growth. Although I have only been with the company for a little over six weeks now, I have been highly impressed with three important factors: First, the people. The team is passionate about their work and the success of the company, fostering a great corporate culture of collaboration and drive. Second, a world-class portfolio of innovative, wireless connectivity and smart sensing IPs. There is no greater indicator of the success of CEVA to date than to realize that more than 50 CEVA-powered devices were sold every second in 2022 and reaching a record 1.7 billion devices over the course of the year. Third, I believe the market opportunity for CEVA’s technology has never been greater. The markets that we serve, including Wireless IoT, 5G, and Edge AI are some of the fastest growing in the semiconductor industry. We are conducting a review of each of our product lines to ensure that we are investing our resources in the areas with the highest potential for growth. Once I have this in place, I look forward to sharing the details of it with you at an investor event, which is planned to take place in the second half of the year. Turning to our performance for the fourth quarter. We reported another solid quarter, despite the weak economic backdrop, with continued strong momentum in our licensing business and resilience in our royalties. We signed [2020 licensing] [ph] agreements in the quarter, with notable strength in 5G, where we signed three agreements, and Wi-Fi 6 with four agreements. We also signed a…

Thank you, Amir. Welcome on board. We’re glad to have you here and good luck. I’ll start by reviewing the results of the operations for the fourth quarter of 2022. Revenue for the fourth quarter was slightly down 2% to $33.4 million, as compared to $34.1 million for the same quarter last year. The revenue breakdown is as follows: Licensing, NRE and related revenue was $22.5 million, reflecting 67% of total revenues, up 5% from $21.3 million for the fourth quarter of 2021. Royalty revenue was $10.9 million, reflecting a third of total revenues, down 14% from 12.7 million for the same quarter last year. Quarterly gross margins came in better than expected on GAAP and non-GAAP basis. Gross margin was 82% on a GAAP basis and 85% on a non-GAAP basis, compared to an 80% and 82% guidance on both of them respectively. Non-GAAP quarterly gross margin excluded approximately equity-based compensation expenses of $0.4 million, and amortization of acquired intangibles $0.4 million. Our total GAAP operating expenses for the fourth quarter was above the high-end of our guidance at $29.1 million due to $1.3 million associated with retirement expenses of executives, an impairment cost of $0.3 million associated with the closing of an office, and lower allocation of Intrinsix’s NRE costs from R&D into cost of revenue, and lastly higher compensation-related expenses. Our non-GAAP operating expenses for the fourth quarter, excluding [Technical Difficulty]

[Operator Instructions] We’ve reconnected Yaniv’s line. Yaniv, please proceed sir.

Thanks. Do you know where we were disconnected? Sorry guys. Anyways, let me pick up here. On the margins, margins GAAP came in at 82%, and non-GAAP at 85% compared to our 80% and 82% guidance, better than expected. Our total non-GAAP operating expenses for the fourth quarter came in higher at $23 million and our GAAP expenses came in at $29.1 million. This is due to three aspects. One is, $1.3 million associated with the retirement expenses of executives, an impairment cost of $0.3 million associated with the closing of an office, and lower allocation of Intrinsix’s NRE costs from R&D into the cost of revenue line, as well as higher compensation-related expenses. Our GAAP tax benefit for the quarter came at $1.7 million, mainly associated with the adjustment of the result of the implementation of the U.S. tax reform rule 174 and on a non-GAAP tax was $1.7 million of expense representing 24% of pre-tax non-GAAP income. U.S. GAAP net income for the quarter was $1.9 million and diluted EPS was $0.08 for the fourth quarter of 2022, compared to $3.9 million net income and [17%] [ph] diluted EPS for the fourth quarter of 2021. With respect to other related data. Shipped units by CEVA’s licensees during the fourth quarter were 375 million devices, down 10% from the fourth quarter 2021 reported shipments. Of the 375 million units reported, 67 million or 18%, were handset baseband chips. Our base station and IoT product shipments were 308 million units, up 10% sequentially, but down 8% year-over-year. Bluetooth shipments were [$220 million] [ph] for the quarter, up 10% sequentially, and cellular IoT units were up 75% sequentially, to 25 million units. Wi-Fi shipments were also up 5% sequentially, to a total of 37 million units. As for the year, our…

Thank you, sir. [Operator Instructions] Today's first question comes from Matt Ramsay with Cowen. Please go ahead.

Thank you very much. Good afternoon and good morning to everybody. First of all, Amir, congratulations and welcome. I think all of us look forward to working with you going forward. I guess the first question I would have is, sort of a big picture one for you and you mentioned in your prepared remarks that you'd be, sort of giving a broader strategic update later in the year, but I wonder if you might share a few thoughts of first impressions as you've sort of taken over as CEO, just areas of focus, impressions of the traditional license royalty business versus intrinsic and the strategy there? Just any big picture thoughts. And then I have a follow-up on the model. Thanks.

Yes, sure, Matt. First, very nice talking with you and thanks for the wishes. And as for my observation since I joined the company for the last 6 weeks within the company, I would say generally speaking first, it's really great to see the diversified technology and portfolio that we have overall. I think that our technologies are really addressing the key market trend in the semiconductors. And more specifically, as I mentioned in the remarks is that, if you look at Wi-Fi, if you look at Wi-Fi 5G, if you look at our software capabilities adding on, all those things are really contributing for a very good potential long-term in terms of the growth for the company. And then with that, of course, I'm looking really how we are investing our R&D activities in order to really foster the potential growth long-term for the company.

Got it. Thank you for that. Yaniv, I wanted to ask a few questions on the model and realizing that it's volatile times out there, but you guys, sort of mentioned in the script that you think the first half of the year revenue wise for the company will follow industry trends and I think it's maybe worth spending a little bit of time and double clicking on that and just giving your view of what industry trends are. I mean, we follow the semi's market broadly, the industry trends right now in auto and industrial are different than any of the consumer facing markets. There's some – certainly some inventory corrections that have happened in certain places there's the potential for disruption and then reopening in China. So, I guess to ask the question bluntly. I don't know what that normal trends are right now. So, if you could kind of give us a little more on thoughts of how you're thinking about the first half of the year that would be really helpful. Thanks guys.

Yes, sure. Excellent question and no doubt that you helped me partially address that as well. Let's back up for Q4. If you look at some of the royalty trends in Q4, we were up sequentially in Bluetooth units. We’re up sequentially in Wi-Fi, were up sequentially in cellular IoT. We were up in most of our core market other than handsets and then 5G which has their own dynamics. If we look at the markets for the first half of the year and some of the commentary that was addressed by public companies and earnings, and you exclude the industrial and automotive because those are markets that for now at least we don't have any meaning for royalties at all. We have life design wins in automotive, but no royalties yet. In Industrial, this is a market that we're working on, but again, it's not one of our existing royalty drivers. Most of our markets are coming from consumer. It could be laptops that is down with center fusion. It could be consumer devices that are now down. In the beginning of the year or at least the first part of it of the year. It could be vacuum cleaners and the like. These are the – some of the – and of course, handset. Handset is something we still have the headwinds for handset and the market themselves are soft. Across the industry. You could hear that from multiple players, big ones in the 5G, but also in the low and mid-term play, which we are much more focused on in this era. So, taking all that in account, we are probably looking at high single digits type of sequential lower revenues, again from a very high level because we're – we have so many different market segments…

Thanks. Lots of color there. Again, you've really appreciate it. Just really last quick one for me and then I'll jump back in the queue. Visibility on any growth acceleration from the 5G infrastructure space? I know that’s been a market that is important to the company and on the [indiscernible] for a while, but also one that on a quarterly basis has some volatility to it. So, those back half of your comments you make about a reacceleration. I assume that's mostly consumer driven, but are the trends in the wireless infrastructure space any different than that? Thanks very much guys. Appreciate it.

Sure. The trends are different. The trends are different and from our experience, there's no real seasonality in 5G. It's release spending the operators and decisions of when to implement new networks. We had a nice year, 2022 was one of the highest years we had, the higher than 2021 on 5G base station. If you look at some of the commentary and design wins that Nokia is discussing and talking about the Indian market opportunities and maybe some other sockets that they're gaining back sharing to it could be an exciting year. Unfortunately, we don't know the timing and when we'll see those royalties exactly kick in and that's aside from our experience in the past, but the trends for 2023 should be positive because of those design wins.

Yes. And I would add to what Yaniv said, I believe our two lead customers. We expect them to gain some market share and overall this market to do well this year, but as Yaniv said, on one-hand, there's no seasonality there. On the other hand, it's hard to predict exactly how the rollout will look like, but generally speaking, we're looking at that optimistically.

Thank you. And our next question today comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Yes, thanks for taking my question and welcome Amir. And just to follow-up on Matt's question, just to clarify it. Was that royalties that you're saying would be down high single digits or does that include licenses? Is there a slowdown on licensing also?

We're taking right now everything in that respect, the royalties is due to the consumer slowdown and handset weakness that we're seeing around us. And I can see it more from a conservative approach of some of the companies that have been loaning off or readjusting out their R&D investments we don't know yet the outcome. We don't know how quick they'll be back in business of a new design start. We haven't seen too many examples of that yet. We are reading the news of the different layoffs and the bigger companies and the readjustments of projects. So, I think we're right now looking at all of the numbers altogether with that single-digit and that's how we are looking at the licensing is still strong. We saw it in Q4 and that didn't happen yet in Q4. Although those trends may have played a little bit and started already a while back. So, we hope we don't bump into them, but that's some of the macro that we see around this.

And maybe I'll add a little bit more colors on that. I would say that fundamentally the business is as strong as it has been on the licensing. So, really, we don't – I don't see and we don't see basically anything fundamental that drives so called different outcome in terms of our abilities to drive licensing in the market. It's just that with the many kind of project changes and realignment of investments that just our customers across the semiconductors are going through. There are projects that can change in terms of timing on one hand. On the other hand, there are projects that may potentially could have been done internally now coming out, so called to work with us on those opportunities. So, just that there is a mixed bag, so called off things that can move as we go through the quarter. And that's why we are looking at it that way

Okay. Thanks for that. And maybe just what's interesting is the software licenses and it looks like you're going into a new customer base of the end products. What's the go to market strategy there? Are you hiring a new sales force for that or I guess just how do you address those new customers?

I would say two things first as far as of a previous acquisition that we have done, we got capable people to go and drive this type of so-called business models, but in addition, we are putting so called more a dedicated team to go and drive those activities as we see it as a meaningful growth opportunity for us again to diversify our product offering and also how we offer those products in the market to drive stronger and longer [indiscernible] of royalty base for us.

Okay, great. Thank you.

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

Hi, Yaniv, Richard and Amir. Best of luck in the new role. So, maybe to follow-up on the last question there on licensing and a longer-term question perhaps. In the past, if you look back, aside from the recent, sort of volatility, the licensing run rate, if we think about licensing and software, kind of growing, what kind of – would that be a similar revenue run rate or what kind of multiple effect with adding software have to your licensing run rate longer term?

Yes. It's a great question obviously and we have demonstrated for many years the licensing business, which is a precursor for royalties and a nice mark that you're technology is relevant in the different markets that you play in. I don't think that has changed. We didn't give annual guidance this year like we normally do. At least this at the beginning of the year and we want to look at it there as we move along, but when we look at the consensus that are out there for CEVA, we're not too far off from our internal planning. That's one thing that I would say. We don't know the ins and outs of – is the licensing going to be stronger, is it royalties when exactly which one of them will pick up, but from a macro perspective, licensing is strong. We've seen that throughout 2022, including Q4, which wasn't for some companies wasn't that easier, was a different environment. We're still increasing and investing in R&D, less, a bit less this year, maybe refocusing, maybe fine tuning. I don't remember a year that we have only guided $1 million to $2 million of non-GAAP OpEx increase. So, we're really looking also conservatively on the expense line, but with that said, all the different markets and all the different trends that Amir talked about that we said in the prepared remarks are still very, very relevant to the different geographies and the different segments in the licensing space.

Yaniv, you're referring to calendar 2023 revenue consensus? Was that what you're referring to in your remark?

Yes. Yes, overall for us.

Great. Actually, my follow-up question is another long-term question. If I do the math in your calendar 2022 base station IoT, royalty and units, it sounds – it seems to be about $0.02 ASP. I know Bluetooth is lower and the others are higher. I'm wondering if longer-term if there is opportunity for that ASP to uplift or whether Bluetooth bend that, kind of lower ASP would continue to dominate the units and keep that ASP around $0.02.

So, what we try to avoid is coming – to come up with our price list on earnings calls. I think it's not something that is typical. But we would say from the chip price in the industry and the complexity, Wi-Fi chips are probably 2x to 3x more expensive than the Bluetooth one, then therefore the ASP for us needs to be in that type of magnitude anywhere between two and maybe sometimes three depends on the end markets. So that's a big potential. I think we've talked about reaching a billion Bluetooth devices last year. Wi-Fi hopefully or should get there in a very short period of time, two, three years, we should be in the same run rate with higher ASPs. So, the opportunity for us in the IoT space and a lot of solutions today are coming out in combo solution, both Bluetooth and Wi-Fi. So that could be as well a very interesting offering that's part of the growth in our base station IoT. That has not changed, not necessarily with the – we don't want to put a [cent] [ph] to it, but the magnitude of those numbers are very applicable today as well.

Yes. I will tend to add to that. If you really look, so-called moving from Bluetooth to Wi-Fi and then from there to 5G and then from there to our AI technologies and more comprehensive than the core DSP on its own with additional hardware accelerators and so on. And as we move also to software, overall, you can see an increase so-called ASP per device that again in terms of the long-term perspective of our royalty base and I'm very, very optimistic about how we see this moving forward as we go through the coming few years.

Okay. Appreciate it. Thanks everybody.

Thank you. And our next question today comes from Chris Reimer with Barclays. Please go ahead.

Hi. Thank you for taking my questions. You mentioned the decline in consumer demand effecting your customers and the fact that you are looking at conservatively and taking away the guidance that you previously used to give. My question is, is there something that makes you think that to the second half of the year will be stronger. Just from – I think you mentioned that currently it's just very weak right now, but potentially the second half will be stronger? Is there something in customer behavior that you've seen maybe from last quarter to this quarter that changed? Or is this something that your customers are telling you that get back to us in the second half or I'm just wondering if there's anything concrete to that?

Yes, sure, sure. It's not coming from CEVA, it's really coming from the industry in many, many different customers. If you look at some of our – even CEVA’s customers whether it's Cirrus Logic or NXP or ON Semi or peers like [indiscernible], Silicon Labs, Skyworks, a lot of players that we have managed together. It first did not give guidance and also believe that the second half without them just macroeconomics not necessarily, whether it's inventory build-outs, whether it's the consumer softness, will clear out that cycle that everybody has been talking about for the last maybe 6 months to 9 months will clear off at the second half of the year. And then we're in a good position to gain a royalty, much higher royalties in the second half than the first half and that's where we're coming from. Nothing specific that our customers told us so that we realize just now, again, you saw the numbers are seeing the numbers for Q4. We are coming from a strong point, but with that said, this is where the trends in the markets are.

Yes. And I would tell us that we're looking for semiconductor industry and inventory levels and all that we expect those to go down as we move forward through the year. And that would help in terms of volume shipments, as well as the expectation in China and other regions. So-called things will open up and consumer will come in the stronger demand after several quarters that were more challenging. And that's in terms of that, yes.

Got it. And just one more. How are you looking at M&A in this environment? Is it something that's on your radar?

Yes. So definitely as I just came on board and there’s definitely a focus area for me, generally speaking, to look how we drive our work strategy. Moving forward, M&A is important to as part of the other things that [I'm looking] [ph] at. We are strongly positioned in terms of our cash and our ability to go into our strategic activities. And definitely that's something that I'm looking at as we drive our strategy for the year.

Great, great. Thank you very much. That's it for me.

Thank you, Chris.

Thank you. And our next question today comes from Martin Yang at Oppenheimer. Please go ahead.

Hi. Thank you for taking my question. My first question is on licensing. Can you maybe comment on whether you see any geographic concentration for licensing activities last year? And is there any tailwind the positive effects from China's reopening into 2023 regarding your licensing activities?

Good question. Let's look at China overall both royalties and licensing because don't recall top of my head percentage of licensing on a worldwide basis, but China is about 50% of our revenues, that means that in order to get royalties in some of the big royalty payers for us, whether it's 5G, whether it's handsets, whether it's Bluetooth, Wi-Fi are coming from China. That means that the licensing activity has been robust there for many, many years, plus minus COVID, shutdown, but even in those months or quarters, we saw that many companies around the world, including China know how to work from home and it all works out well and we closed deals also from remote. So, that has been the case. And I'm not sure anything has changed around that. We have a new sales team in Europe, so one of the bigger opportunities for us is to focus on the European market in licensing. This is something that we'll probably give more focus this year. And the U.S. I think also is something that we've been doing for the last three years. It started with Hillcrest and the team that we acquired and added the sensor fusion technology where two years ago was we added intrinsic, so we have about 100 people today mostly R&D in the U.S. with new markets and new opportunities and enhanced business models. So, I think Amir has a lot of insight. We'll try to help them make it, but there's no doubt it's not just China. We don't see any big changes right now, but it's the overall macro environment, layoffs are happening everywhere. And companies are just trying to call their next steps and maybe make do things a little bit more efficient and that's the real concern that we are sharing with you guys, nothing specific other than that. Amir?

Yes. But I would say [indiscernible] for licensing again. For licensing, I would say, again, as we look at the first half of the year, I see across Europe, the U.S. and some Asia Pacific multiple, very nice opportunity coming specifically on the comment on China, I share that belief that as again, economy will open up more and more that investments into this type of technology will enhance as we go into the second half. So, overall, again fundamentally, we believe that licensing is overall in a good place and it's quite diversified across the globe.

Got it. I have one more question on licensing. When it look at the share of the deals you’ve signed, particularly the share of connectivity, Bluetooth Wi-Fi and ultra-wideband versus vision, sound, and AI, do you expect some of the mix shifts changing among those larger components within the deals within your licensing agreements in the next, let's say, two years to three years?

Indeed, indeed, I'll start with the easier one, which is AI. AI, we've been talking a lot of about for a while. AI is not just a generic self-contained processor, but it's really part of all our product lines these days and you could find it in a 5G base station or you could find it in a vision camera based device and that's something unique that CEVA could have as AI on the edge and with lots of different processors and technology that we're offering. So, that's one aspect of it. The other is the combination. When we talk about some of the high-end audio solutions that are coming out to the market. It both has – and we showed it at CES. It was a nice demo there. Will probably – whoever join us and visit us in Mobile World Congress will have the same solution. You could have the spatial, the spatial audio, you could have Bluetooth connectivity, you could have [head sensors] [ph]. So, we have different technologies combining. Some of them is processor based, some of them is software based. The more we could add the higher ASPs both on the licensing and further down on the royalties that is part of our trend. And if you could add every once in a while and help our customers with services or NRE, what we call co-creation, that's part of the CEVA offerings today into the semiconductor space.

Got it. Thank you very much.

Thank you. Our next question today comes from David O’Connor of BNP Paribas. Please go ahead. David O’Connor: Great. Thanks for taking my questions and welcome Amir. Maybe just to start, you talked about the portfolio review and in your opening remarks, what's the, kind of potential outcome of this portfolio review? I mean, is there areas of the business you may think that's a more non-core [previous] [ph]? That's my first question. Second question is on the uptick in the second half. Is there any big new designs that are coming to market that can help in that uptick in the second half? And a final question, Ultra-Wideband on the strategic deal there, can you give us any indication what geography that was in? And what the licensing pipeline for Ultra-Wideband looks like? Thank you.

Yes. So, in terms of looking at our portfolio of investments. And what I would like to make sure and I'm working with the team is basically to make it the most efficient into the growth areas that we see with the most potential in terms of the business model potential and the market potential with where we can basically be the most competitive with our technology. So, that's the portfolio analysis that I'm doing with the team. And of course, with that, I would like to make sure that we are putting the investments in again, there has potential growth areas for us, as well as where we can mostly differentiate and what was… David O’Connor : UWB the…

Yes. In terms of the UWB, actually this is a very exciting technology that for many, many years haven't been able to really take off. Now with the penetration into some of the [indiscernible] smartphone OEMs, we see that now we're propagating into multiple used cases across the all IoT domains, things related to inter-positioning, to security to car keys and automotive and also very secured and low power type of connectivity that will complement very nicely also Wi-Fi and Bluetooth. So, we are very strong portfolio of IP and technology to enable our partners to go very quickly to market with this type of technology. Of course, how big that market will be is still to be seen, but overall, I see considering the fundamentals values of this technology and now that the ecosystem is really supporting to take that off. I'm very bullish on the potential of this technology, but time will tell and I believe we really have a very strong technology to support our partners as that takes off.

By the way, this was an APAC region type of deal, the automotive one. And the question on M&A. The first question, what was that, David? David O’Connor: Yes. There was just a third part, just on the H2, the second half uptick. I understand that the markets may swing back, but just is there any other new design wins coming that are ramping, any big ones there that may help accelerate that uptick in the second half? Thank you.

Yes, I would say a few potential new customers that have been designing, whether it's a Wi-Fi 6 design that can go into production, whether it's some of the ramp-ups in the 5G design wins that our customers want. We show that CES those very nice headsets with one of the India's top OEM brands in wearables and that could come in nice volume, as soon as that picks up. So, there are obviously quite a few, we have north of 30 Wi-Fi deals and hands full only in production. So, lots of customers potentially could get in. I think we talked about either this year or next year, but those are [all lineup] [ph].

I think of what I would summarize, [down that potential] [ph] that we see stronger growth or stronger volume coming into the second half of the year is really as you look at the combination of what we talk about the Wi-Fi, the 5G, and supporting the non-handset domain and base stations, as well as the software, right? All those things, we've already licensed to many, many customers and we have many more in the pipe. And we see that's really with very good strong potential as we go to the second half.

Okay. Thank you. And our next question today comes from – yes, sir. Our next question comes from Gus Richard with Northland. Please go ahead.

Yes, thanks so much for taking the question, Amir. Welcome aboard. Hope all goes well for you. Just a quick question on licensing NRE. I know you don't split those out, but could you give us a sense of the growth trends of those two different segments of that business is licensing growing a little faster or is NRE?

I think it varies on the design wins. And you could sometimes see it also in the gross margins just from a technical point of view. Q4 was relatively high margins. We're starting the year as well. I would say that probably the later part of the year, there are some very interesting deals that we're lining up on the NRE side. So, those 85% non-GAAP margins would probably slip a bit, but then that would be the contributor to the top line service revenues. So, we think that is a very nice combination, especially today the opportunity for companies that laid off R&D staff, but still want to get into connectivity, but still want to get help to get a product out when the market picks up, whether it's six months from now or nine months from now, that's the time to invest and instead of internal headcount. They could use outsourcing. These are the opportunities also in the service business that we're focused and obviously the cocreation, which is a combination of the IP and services. So, I don't think we have a seasonality in this business. It's just based and driven on deals that we sign, but there is a very good interest across that side of the business as well. And we think that that should be picking up anywhere from the second quarter onwards, specifically for 2023.

Got it. And then on the royalty side, ARM has been lifting pricing on their latest version of [ARM9] [ph], and I'm just curious, is there either any pricing pressure or do you have any ability when you sign these contracts to modify your royalty rates and sort of just royalty rates go up with increasing content?

There are two things that help us with royalty rates. Either it's what we offer and the combination of more IPs or higher-end devices versus lower cost devices or end-markets. If you are targeting a Bluetooth for a more advanced hearing aid device versus consumer device, which is much more high quality. Those are obviously true for any TV or true for any consumer device that differs in the pricing. So, I would say end-markets is Number 1. Number 2 is the offerings, software or processor type that will also – customers – we are partners of our customers. We want them to succeed because that's the only way we could succeed. So, from time-to-time, they talk to us. We try to offer them newer technologies, the different rates, royalty rates, and enhancements. So, that's an ongoing process, the win-win situation is the customer gets the right technology to be successful and sell products. And we move from one product to one – the product to the other to a newer one and then we're able to also get higher licensing fees and get higher start in royalties. So, I think those are the three aspects that really determine the [ace piece] [ph] for us.

Okay. Got it. I'll stop there. Thank you so much.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Richard Kingston for closing remarks.

Great. 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 investors.ceva-dsp.com. With regards to upcoming events, we will be participating in the following conferences: Mobile World Congress, February 27th to March 2nd in Barcelona, Spain; 35th Annual Roth Conference, March 12-14, in California 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.

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