CEVA, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. CEVA licenses wireless-connectivity and smart-sensing intellectual property to semiconductor and equipment companies, earning licensing fees and royalties.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $25.4 million | $23.6 million | Up 8% |
| Licensing and related revenue | $14.4 million | $14.5 million | Down 1% |
| Royalty revenue | $11.0 million | $9.1 million | Up 21% |
| Gross profit / margin | $23.0 million / 91% | $20.9 million / 88% | Margin up about 3 percentage points |
| Operating loss | $1.3 million | $1.7 million | Loss narrowed |
| Net loss / diluted loss per share | $3.6 million / $0.16 | $1.2 million / $0.05 | Net loss increased |
| Cash provided by operating activities | $15.2 million | $6.4 million | Increased |
Operating expenses rose to $24.4 million from $22.5 million, principally due to higher headcount, compensation and foreign-exchange costs. Research and development expense increased to $17.6 million. Net financial income fell to $0.04 million from $0.83 million, including a $0.41 million foreign-exchange loss. Income-tax expense rose to $2.34 million from $0.35 million, primarily reflecting increased French earnings taxed at a higher rate.
At March 31, cash and cash equivalents were $53.7 million, short-term bank deposits $8.4 million, marketable securities $83.9 million and long-term bank deposits $28.2 million: $174.1 million combined, versus $159.7 million at year-end 2020. Management said these resources and operating cash flows should fund operations for at least 12 months. No conventional borrowings are reported in the supplied filing text; operating lease liabilities totaled $7.9 million, including $2.8 million current. Current assets were $178.7 million and current liabilities $36.9 million.
Cash from operations benefited in part from collections and changes in accrued payroll, including employee tax liabilities related to stock-award exercises. Investing activities provided $16.2 million, mainly reflecting deposit proceeds and marketable-security transactions. Financing activities provided $1.6 million from stock-award exercises; CEVA made no share repurchases in the quarter.
Material changes and operating developments
- Royalty growth more than offset slightly lower licensing revenue. Customers reported shipments of 341 million chipsets incorporating CEVA technology, up 31% year over year.
- All 11 licensing agreements signed in the quarter covered connectivity products; two were with first-time customers. Ten were signed in China and one elsewhere in Asia-Pacific.
- Base-station and IoT royalties grew 55% year over year. Connectivity products represented 82% of revenue, up from 76%; smart-sensing products represented 18%, down from 24%.
- Revenue concentration increased: the five largest customers generated 64% of revenue, versus 45% a year earlier. Three customers individually contributed 23%, 14% and 12%.
- Asia-Pacific generated 80% of revenue, including 68% from China, compared with 64% and 51%, respectively, a year earlier.
- Outstanding shares increased to 22.8 million from 22.3 million at year-end, primarily reflecting issuance of treasury shares upon stock-award exercises.
Outlook, risks and unusual items
The filing provides no numeric revenue or earnings guidance. Management described licensing demand as healthy, highlighted customer interest in connectivity and reported strong royalty demand, while expecting base-station and IoT royalty growth to continue over the next few years. These statements are forward-looking, not a quantified forecast.
- COVID-19 and supply: Management said the pandemic had not materially affected results through Q1, but it could not estimate the full 2021 impact. Semiconductor shortages, longer manufacturing lead times, and potential restrictions or weaker activity in markets including India and Brazil could affect customers and royalties.
- Concentration and cyclicality: A limited number of customers account for substantial revenue and royalties. Semiconductor-industry conditions, product shipments, licensing timing, royalty rates and customer design wins can make quarterly results volatile.
- Foreign exchange and taxes: Most expenses are denominated in Israeli shekels and euros. CEVA reported higher currency costs and expects additional exchange-rate expense in 2021 if the U.S. dollar continues to weaken against those currencies. French earnings and changes to tax benefits or tax rules could also affect the effective tax rate.
- Acquisition after quarter-end: On May 9, 2021, CEVA agreed to acquire Intrinsix Corp. for $33 million in cash, subject to customary adjustments and closing conditions; closing was expected in Q2. The final purchase-price allocation had not been determined.
- Other: CEVA reported no material legal proceedings and no material changes to most previously disclosed risk factors. Disclosure controls were assessed as effective at March 31, 2021.
Important facts for investors to verify
- Whether royalty growth and customer chipset shipments persist, particularly amid semiconductor supply constraints and seasonality.
- Whether the higher customer concentration and China/Asia-Pacific exposure remain manageable.
- How foreign-exchange movements, French profitability and applicable tax benefits affect future expenses and taxes.
- Whether CEVA completes the Intrinsix acquisition on expected terms and how it affects cash, operations and future results.
- Whether operating cash generation remains sustainable, given its contribution from working-capital movements.