CEVA, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. CEVA licenses wireless connectivity and smart-sensing intellectual property and provides chip-design services, including through Intrinsix.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $28.7 million | $34.4 million |
| Licensing, NRE and related revenue | $20.7 million | $22.4 million |
| Royalty revenue | $8.0 million | $12.0 million |
| Gross profit / margin | $23.4 million / 82% | $28.0 million / 81% |
| Operating expenses | $28.2 million | $27.5 million |
| Operating income (loss) | $(4.8) million | $0.5 million |
| Net income (loss) | $(4.9) million | $(1.7) million |
| Basic and diluted loss per share | $(0.21) | $(0.07) |
| Operating cash flow | $(5.1) million | $9.8 million |
- At March 31, cash and cash equivalents were $24.5 million, short-term bank deposits $6.2 million, marketable securities $106.1 million and long-term bank deposits $8.3 million: $145.1 million combined. Total current assets were $180.6 million; current liabilities were $35.0 million.
- CEVA reported no borrowings. Operating lease liabilities totaled $9.4 million, including current and long-term portions.
- Cash and cash equivalents increased $3.2 million during the quarter, reflecting $6.5 million of investing cash inflow and $1.7 million of financing inflow, offset by operating cash use. Investing inflows included proceeds from securities sales and maturities.
Changes versus the prior-year quarter
- Revenue fell 16%; royalties declined 33% and licensing/NRE revenue declined 7%. Management attributed the overall decline mainly to smartphone and PC weakness, customer inventory adjustments, traditional seasonality, and handset baseband shipments pulled into Q4 2022.
- Customers reported shipments of 297 million chipsets incorporating CEVA technology, down 44% year over year. Connectivity represented 77% of revenue, versus 75%; smart sensing represented 23%, versus 25%.
- Gross margin increased to 82% from 81%, while operating expenses rose 3%. Lower revenue and increased R&D spending contributed to the operating loss.
- Research and development expense was $20.8 million, up from $20.2 million; R&D personnel increased to 344 from 313. Net financial income increased to $1.5 million from $0.3 million, principally reflecting higher yields and a foreign-exchange gain. Income tax expense was $1.4 million despite the pretax loss.
Outlook, commentary and risks
- Management stated that cash, deposits, marketable securities and expected operating cash flows should fund operations for at least 12 months, while cautioning that revenue and expense assumptions may not prove accurate. No formal revenue or earnings guidance for the year was provided in the filing.
- CEVA completed 13 IP licensing and NRE agreements, five with first-time customers; seven involved wireless connectivity. Management reported record royalties from cellular IoT and Wi-Fi, including first-time royalties from three Wi-Fi 6 customers, and expects royalty growth in base-station and IoT products over the next few years.
- Customer concentration remains significant: the five largest customers represented 39% of revenue, and one customer represented 13%. Asia Pacific accounted for 72% of revenue; China alone accounted for 62%.
- Marketable securities were principally corporate bonds, with approximately $6.2 million of unrealized losses at quarter-end. Management said credit-loss allowances were not material and that it generally holds securities with unrealized losses to recovery, but recovery is not assured. The filing also cites exposure to bank solvency, interest rates and foreign-exchange movements; $140.0 million of the $145.1 million in cash, deposits and securities was held by foreign subsidiaries.
- In May 2023, CEVA agreed to acquire the VisiSonics 3D spatial-audio business for $3.6 million at closing, plus founder consulting payments of $0.2 million in total over 12 months. The final purchase-price allocation had not been determined.
- Management reported effective disclosure controls as of March 31, 2023, no material change in internal control over financial reporting, and no legal proceedings believed likely to have a material effect.
Important facts for investors to verify
- Whether royalty revenue and chipset shipments recover as customer inventory and smartphone/PC demand conditions change.
- Revenue and cash-flow dependence on a limited set of customers, and exposure to China and broader Asia Pacific markets.
- The liquidity and valuation risks of the corporate-bond portfolio, including the $6.2 million unrealized loss, and the accessibility of funds held by foreign subsidiaries.
- Whether management’s 12-month liquidity expectation remains supported by operating cash flows and actual spending.
- The terms, closing status and ultimate purchase-price allocation for the VisiSonics acquisition.