Good day, and welcome to the Ceva Inc. Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's remarks, 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-Market Intelligence. Please go ahead.

Thank you, Jason and good morning everyone. Welcome to Ceva's third quarter 2024 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of Ceva. Before handing over to Amir, I would like to remind everyone 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 our market positioning, strategy and growth opportunities, market trends and dynamics, expectations regarding demand for and benefits of our technologies, our sales pipeline and backlog, our financial goals and guidance regarding future performance and our expectations regarding utilization of our stock repurchase program. Ceva assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. In addition, following the divestment of the Intrinsix business financial results from Intrinsix were transitioned to a discontinued operation beginning in the third quarter of 2023 and all prior period financial results have been recast accordingly. We will also be discussing certain non-GAAP financial measures which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release, which we issued this morning and in the SEC Filings section on our Investor Relations website. 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 and welcome everyone, and thank you for joining us today. Our third quarter delivered another impressive consecutive performance executing effectively against our strategic plan and exceeding market expectations. Our results are pass targets with both top-line revenue growth and non-GAAP fully diluted EPS coming in above projections. Total revenue for the quarter came in at $27.2 million up 13% year-over-year benefiting from our innovative product offerings to the market and positive tailwinds in both our licensing and royalty businesses. Our backlog and pipeline continue to improve and we are in a healthy position as we head into the fourth quarter and 2025. As a result, we are raising our guidance for the full year 2024, which Yaniv will elaborate on later in the call. In licensing, the third quarter produced several important milestones for Ceva that reinforce our strategy of delivering leading edge IP that enables smart edge devices to connect, send and infer data. Highlights include the first licensing deal for our NeuPro-Nano embedded AI NPU, multiple deals for our PentaG 5G advanced, wide access network and satellite communications platform and high-profile smartphone OEM customer for our New Space spatial audio software. Overall, licensing revenue came in at $15.6 million up 12% year-over-year with 10 deals completed in the quarter across all geographies and with multiple OEM customers. In royalties, the momentum in the consumer and industrial end markets continued driving 15% year-over-year royalty revenue growth to $11.6 million and year-over-year royalty revenue growth for the fourth successive quarter. Before I provide more color on our business, I want to reiterate that we are steadfast in our belief that our borrower IP portfolio is highly synergistic with the most pressing needs of semiconductor companies and OEMs as they develop their Smart Edge products and rely on…

Thank you, Amir. I'll start by reviewing the results of our operations for the third quarter of 2024. Revenue for the third quarter was $27.2 million, up 13% compared to $24.1 million for the same quarter last year. The revenue breakdown is as follows; licensing and related revenue was $15.6 million, reflecting 57% of total revenue, increased 12% year-over-year. Royalty revenues were $11.6 million, reflecting 43% of our total revenue increased 15% year-over-year. Gross margins came below our guidance 85% on GAAP and 87% on a non-GAAP basis, compared to 90% and 92% on GAAP and non-GAAP basis, respectively a year ago. This is mainly due to a strategically beneficial customization work associated with key 5G advanced deals we signed recently. Our ability to provide the most advanced 5G platform IP together with customization expertise to the semiconductor and OEM community is highly compelling and is enabling us to sign deals with higher licensing fees, higher royalty rates and creates sticky long-term relationships. Total gross operating expenses for the third quarter were $25.9 million at the higher end of our guidance due to slightly higher equity based compensation expenses. Total non-GAAP operating expenses for the third quarter excluding equity-based compensation expenses amortization of intangibles and related acquisition costs were $21.4 million just over the mid-range of our guidance and in the same expense level as the second quarter. Non-GAAP operating margins and net income were 8% of revenue and $2.1 million, 14% and 30% higher than operating margins of 7% and operating income of $1.6 million recorded in the third quarter of 2023, respectively. This plays well with our commitment to increase growth and profitability in line with new IP developments and disciplined expense growth. GAAP operating loss for the third quarter of 2024 was $2.6 million as compared to…

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead.

Yes. Thanks for taking my question and congratulations on the great results. Just maybe a clarification or maybe restate it on the gross margin -- the drag on gross margin this is engineering time, you're spending making a custom 5G modem platform. And this extends a little bit into next quarter. Is that is there going to be an extension further? And also yes I just want to understand does this platform then become a standard device that you license to other companies?

Sure. Good morning. Thanks for the question. So in our cost of revenues and IP business you do bring up R&D resources when you do some customization work for your customers. This is a very strategic large deals. We had a few already -- two of them in the modem 5G space earlier in the year. Now, this is the third one that we signed now in the third quarter. Two of these deals we have some work that are -- is associated with it. And these are special requests to change specific things for these specific customers. Of course the knowledge and the know-how and the capabilities of doing things like this in the future remains with CEVA. And this could drag one quarter or so the few quarters the margin a little bit down. At the end of the day, its allocation of R&D cost to cost of revenue. It's not an increase in the overall expenses. And when you look at an annual basis, this year, we are still looking at 89%, 90% margins non-GAAP. So, nothing has changed dramatically, just a little bit more effort on the top line versus R&D.

Yes. And Kevin I will add to that also more on the strategic view of how we are driving the company and the business. If you recall when I talked previously long-term, what we would like to achieve is basically to be a truly partner for our customers and driving better economy and value to our customers of the technologies that we provide. In this case with the 5G advanced platform basically we bring up a complete platform that started with the so-called DSP and processing technology, but now a complete L1 modem technology hardware and software. This is an IP that we are building and we will go and expand our IP across all -- our customer base. In this specific case including the other deals through the year there's also additional so-called customization and support that we provide to our customers, but that drives the long-term economics of better licensing and royalty moving forward as we continue to build the connectivity IP portfolio that we have.

Okay. Great. Thanks for that clarification. And maybe as you're designing with this platform is there an opportunity for Wi-Fi in -- on the platform overall?

That Kevin – Kevin that's a great question. So in this specific case we are starting with the 5G advanced platform, but we have multiple customers that are looking to add to this platform WiFi and Bluetooth and other technologies. So definitely on top of what I said strategically more value and economics per deal is really creating and adding more content of the digital wireless connectivity. And on top of that moving forward also what we will see is adding AI or neural network capabilities in terms of the processing that we provide in this type of connectivity platforms with the NeuPro-Nano that we talked about today as well as the other NPUs that we have in our portfolio. So definitely what we see is and I'm very happy with how I see the strategy that we put in place that we are executing that exactly to our plan and driving more and more value and with that economics of the deals to our customers with the multiple connectivity technologies and then on top of that AI.

Okay. Great. Thanks.

Thank you.

[Operator Instructions] And our next question comes from Chris Reimer from Barclays. Please go ahead.

Hi. Thanks for taking my questions. I wanted to ask about the licensing deals. You announced 10. I think it was on the press release. It's a little lower than your run rate for previous quarters. I'm just wondering is that significant or reflecting maybe some deal slippage into next quarter? Anything you can speak to that?

Yes, definitely. Thanks for the question, Chris. First quarter-by-quarter the numbers can change a little bit as we know with licensing business. It can vary between quarters. But overall we are very satisfied with the number of deals that we have and the type of deals that we have which is even more important. And the mix can vary in each quarter. In this case we highlight several deals with multiple OEMs that will drive better economics moving forward as well as our advanced wireless connectivity solutions. So the number of deals is -- we talked about that roughly on an annual basis we're typically about around 50 deals a year or so. So it can vary quarter-over-quarter. But for us it's more the quality of the deals than the quantity of the deals and overall how is our technology basically adopted by our customers.

Got it. And just on the backlog and pipeline you mentioned the improved momentum. So how would you describe it now versus at the beginning of the year?

Yes. So a few things on that. One first on the pipeline that I highlighted as well in the prepared remarks. The pipeline that I see today is the highest that I've seen since I joined the company at the beginning of 2023. And that goes back to we really see our strategy fitting very nicely with the market needs across all our technologies of connect sensing infer and through the key end market which we are targeting as part of the Smart Edge. In terms of the backlog this quarter for Q4 we are basically in a position right now that the backlog is strong. And with that overall we raised the guidance for annually as well as to some degree for this quarter. So we're in a good place and I'm very happy with how I see the execution coming together.

Great. Thanks for that. That’s it for me.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Amir Panush. I'm sorry we have another question. We have a question from Gus Richard from Northland. Please go ahead.

Yes. Thanks for taking the question. Just real quick, there's been a little bit of a shift obviously from spending to gross margin as you customize to do some custom work for customers. Is that the way we should think about the model is gross margins in 2025 coming into the high-80s and a little bit lighter on the R&D line?

Hi. Good morning. I'm not sure we're not talking about yet the 2025 model for this year and the guidance for Q4. And if you plug that in, you will get that the year is around the 89% to 90-ish percent so in line with the 90-ish that we've been around for a long time. We're not changing our model. It's not becoming a service company. It's just specific -- very specific deals in very specific areas that because of the offerings and because of the excitement of 5G advanced, we won three consecutive deals in the last two quarters. So, very strong execution on that and it happens to be that some of them need some more work. So one of those deals that we signed now in Q3 will have a few more quarters of work and support for that specific customer, but we're not changing the model. We're not changing and we're still as an IP company, it should be in the 90-ish 1%, 2% up or down. It's not changing anything majority in this -- in the model aspects.

Got it. And let me just try asking the question another way. Are you seeing increased demand for customization beyond 5G advanced as more OEMs get into the business of building their own chips they don't have the design expertise. And I'm just wondering is -- you're not going to be a design services company but OEMs need more help than a semiconductor company, let's say. And I'm just wondering if that's giving you an opportunity to do a little more customization work and obviously, drive higher licensing and royalty down the road but paying upfront and a little bit lower gross margin. That's the nature of the question.

Yes. Gus, I'll address that. It's a good question. And the way Amir was basically framing it is that, when we look at the different deals and what we offer to our customers for us, it's less about so-called the level of customization is the value that we offer them. Definitely with the multiple connectivity technologies and ability to put them together as a so-called pre-tested pre-integrated with the software stack on top of that we are bringing more and more value to our customers and that resonates very, very well with OEMs or large semiconductor companies that have those gaps that you alluded to or mentioned. So definitely we see us as a better fit to drive higher value type of deals both on the licensing and the long-term royalty that can bring. And we are very happy that that strategy is now getting executed and resonates very well with the customer base. With that to the most part, most of our customers, because we are doing the pre-integration and software integration to the platform by ourselves in advance, it will be an IP that is offered off the shelf and will increase more and more in value and capabilities. Here and there, we have the opportunities to get and build expansion of our IP and into new markets and with new customers we will see here some customization on support. But that's part of at the end of day our IP offering as we provide it to OEM and semiconductors that really have those gaps.

And Gus, I'll add to that that if you try to quantify this we signed 50 -- 40 to 50 deals a year. It's less than a handful of deals per year that need to be -- need some support in these types of customization. The bulk of the business is off-the-shelf IPs that we develop and then license as is. So it's really sporadic deals over a year. And if two or three fall in the same time frame of one or two quarters then this is why we saw this 87% this quarter versus the 90-ish that we really see on a normal quarter.

Got it. I understand. Thanks so much.

Sure. Thank you.

[Operator Instructions] And our next question comes from Martin Yang from Oppenheimer. Please go ahead.

Thank you for taking my question. My question is on Wi-Fi very strong shipment quarter. Is there any additional color you could provide on underlying markets or products that contributed to the strength in Wi-Fi? That's the first question. Second question is do you think this level of shipment is sustainable versus roughly an average of $30 million in the preceding quarters?

Yeah. Mark good question. First I would say that overall not just Wi-Fi across the Bluetooth Wi-Fi and Cellular IST combined definitely this is a record quarter for us and illustrating the strategy and the execution that we have been driven for a while to penetrate and create a leadership in the connectivity Smart Edge market. So we are very, very happy with where we are and how we see the royalty moving forward and so far. Specifically on Wi-Fi, actually I would say we are early in the ramp [indiscernible]. As we pointed already during the Analyst Day last year, Wi-Fi shipments volume in terms of the potential royalty ramp and overall volume shipments is still a significant growth area for us. What drives it is we are penetrating more market share by our customers that license our technology really reaching production. And once they reach production they're also reaching more, platform and with that increased volume of shipment volume as time goes by. So definitely our expectation in the long run as we look at 2025, 2026, 2027 as we shared during the Analyst Day end of last year, we expect the Wi-Fi volume to increase significantly with a good success as we have seen in our -- with our Bluetooth technology. Now it can vary quarter-over-quarter, it depends on the market condition. But overall the baseline that drive that tailwind which is the 30 and more customers that already licensed our Wi-Fi 6, we expect those customers to go more to production, more platform that they're shipping into and with that increased volume overtime.

Hi Martin, this is Richard here. Just to add on another couple of points to Amir's, answer there. So, one of our customers who showed quite a big jump in shipments in the quarter indicated that some of their customers are starting to -- a new inventory restocking process. And I think this is backed up as well by TSMC's earnings report recently where they talked about the strength of IoT. So there's definitely a move to a big volume of IoT chips with connectivity coming into the market right now. It's been seen at the fabs and also in the supply chain as well. So that definitely bodes well. And with our large customer base there that Amir alluded to, we can see that to continue to grow. Obviously, quarterly, we don't have any control over, but the trend is definitely heading in the right direction.

Got it. Thank you, Richard. Thank you, Amir. That's it for me.

The next question …

Thank you.

The next question comes from Warren Darilek from D.A. Davidson. Please go ahead.

Yes. Congrats on a great quarter. The question is for someone like me that's followed you guys for approaching 20 years it feels like a new secular growth phase you're entering. My question is involving the cash hoard you have in the bank. Are there complementary companies out there that might play into the new focus you have going forward that you all were considering or would consider? Are there candidates at present that you all are actively shopping or looking?

Yes thanks for the question. So first last year we acquired our risk space technology. And now we are seeing that actually ramping up with new customers like the OEMs that we mentioned today on the call. And we also invested more in overall our IoT portfolio, connectivity portfolio with the expansion of more technology and things that will come and we'll be able to talk more in the coming few calls. In addition to that of course, as you pointed out, our balance sheet is very strong and we are definitely looking how to deploy that into different type of M&A opportunities. We definitely – there are opportunities out there and this is reasonable to expect that as we go into the next year we will continue our acquisition to build more momentum across our wireless connectivity portfolio and overall the IP that we can offer.

I would add on top of that we also increased the buyback offering today. So that's also something that we have done in the past and we'll continue to use our excess cash for that reason.

Fantastic. Thanks, guys.

Thank you.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Amir Panush for any closing remarks.

Thank you. On behalf of Ceva team, thank you for joining us today. We delivered another strong quarter on the back of continuing business momentum and increased demand for our IPs. The semiconductor industry has returned to good growth, driven by AI. And through our stellar customer base we are already seeing this growth through our royalty business with four consecutive quarters of year-over-year growth. And with our leading-edge portfolio of technologies that enable smart edge devices to connect, sense and infer data, we are realizing many licensing opportunities with the world's leading semiconductor companies and OEMs that ensure we are well positioned to meet our long-term growth objectives. We look forward to meeting many of you during the fourth quarter on the road at investor conferences and non-deal roadshows. Richard I will hand over to you to wrap it up.

Thanks, Amir. 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 Investors section of our website. With regards to upcoming events, we will be participating in the following conferences: the 13th Annual ROTH Conference Technology Conference November 20 in New York; the Barclays 22nd Annual Global Technology Conference December 11 in San Francisco; the Northland Growth Conference 2024 2.0 on December 12 being held virtually. We'll be at CES 2025 from January 7 through 10 in Las Vegas. And the following week we'll be at the 27th Annual Needham Growth Conference January 14 and 15 in New York. 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 all and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.