CEVA, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are U.S. dollars in millions except per-share data and percentages. CEVA licenses wireless connectivity and smart-sensing IP and provides chip-design services.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $26.2 | $33.2 | $54.9 | $67.6 |
| Licensing, NRE and related revenue | $16.8 | $22.1 | $37.5 | $44.5 |
| Royalty revenue | $9.4 | $11.1 | $17.4 | $23.1 |
| Gross profit / margin | $20.6 / 79% | $26.4 / 79% | $44.0 / 80% | $54.4 / 80% |
| Operating income (loss) | $(6.3) | $(0.3) | $(11.1) | $0.2 |
| Net loss | $(5.8) | $(1.1) | $(10.7) | $(2.8) |
| Basic and diluted loss per share | $(0.25) | $(0.05) | $(0.46) | $(0.12) |
| Operating cash flow | Not separately stated | Not separately stated | $(9.9) | $1.7 |
- Revenue declined 21% in Q2 and 19% in the first half. Licensing/NRE revenue decreased 24% and 16%, respectively; royalties decreased 15% and 25%.
- Operating expenses were $26.9 million in Q2 and $55.1 million for the first half, up from $26.6 million and $54.2 million. R&D was $19.6 million in Q2 and $40.4 million in the first half; lower revenue pushed R&D to 75% and 74% of revenue, respectively.
- First-half net cash used in operations was $9.9 million, compared with $1.7 million provided in the prior-year period. Cash and cash equivalents ended at $27.5 million.
- Cash, short-term bank deposits and marketable securities totaled $135.6 million at June 30, 2023, versus $147.7 million at year-end 2022. Total assets were $300.3 million and stockholders’ equity was $258.6 million. No debt borrowings are identified; operating lease liabilities totaled $9.1 million.
Business changes and management commentary
- Management attributed weaker results to semiconductor-market conditions, slower licensing activity and weaker handset and PC demand. Startup licensing was affected by reduced venture funding and instability following Silicon Valley Bank’s failure. Royalties also reflected customer inventory adjustments, handset shipment timing and seasonality.
- Management reported a Q2 recovery in royalties, driven by smartphones targeting emerging markets and restocking in consumer and industrial IoT. Customers reported 370 million chipsets incorporating CEVA technology in Q2, down 14%; the first-half total was 667 million, down 31%.
- CEVA concluded 17 IP licensing and NRE deals in Q2, five with first-time customers. Eleven deals were for connectivity and six for smart sensing. The company also signed a 5G RedCap modem development agreement and three Wi-Fi 6/Bluetooth 5 combo customers.
- Connectivity products generated 76% of Q2 revenue and 77% of first-half revenue. Asia Pacific represented 73% of Q2 revenue and 72% of first-half revenue; China alone represented 49% and 56%, respectively.
- In May, CEVA acquired the VisiSonics 3D spatial-audio business for $3.6 million at closing, with up to $0.2 million in founder consulting payments. Preliminary allocation included $1.6 million of identifiable intangible assets and $2.0 million of goodwill.
Liquidity, outlook and risks
- Management believes cash, deposits, marketable securities and operating cash flows will fund operations for at least the next 12 months, while noting that revenue and expense assumptions may not prove accurate. The filing provides no quantified revenue or earnings guidance.
- Approximately $131.6 million of the $135.6 million in cash, deposits and marketable securities was held by foreign subsidiaries; repatriation to the U.S. could incur taxes.
- Available-for-sale corporate bonds had approximately $6.0 million of unrealized losses, principally associated with interest-rate changes. Management said credit-loss allowances were immaterial but cannot assure recovery of market-value declines. Deposits exceed applicable insured limits, exposing CEVA to financial-institution risk.
- Other notable risks include semiconductor cyclicality, customer and royalty concentration, venture funding conditions, China/U.S. trade tensions, foreign-exchange fluctuations and dependence on government grants and French research tax credits. Two customers each represented 12% of Q2 revenue; the five largest customers contributed 43% of Q2 revenue. The five largest royalty payers represented 64% of Q2 royalties.
- CEVA reported no legal proceedings believed likely to have a material effect. Disclosure controls were judged effective, with no material quarterly change in internal control over financial reporting. No shares were repurchased in the first half; 278,799 shares remained authorized for repurchase.
Important facts for investors to verify
- Whether licensing activity and semiconductor-startup funding recover, and whether reported Q2 royalty improvement continues.
- How revenue and royalty concentration, particularly among major customers and in China, evolves.
- Whether operating cash use persists and the company’s liquidity remains sufficient, including the accessibility and value of foreign-held funds and corporate-bond investments.
- How the VisiSonics acquisition performs and whether its preliminary purchase-price allocation changes.
- Whether management’s 12-month liquidity assessment remains valid amid market, currency and customer-demand risks.