CEVA, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021. CEVA licenses wireless connectivity and smart-sensing intellectual property (IP), earns royalties on products using its IP, and provides non-recurring engineering (NRE) services. Its markets include mobile, IoT, automotive, industrial, and aerospace and defense. The May 2021 acquisition of chip-design firm Intrinsix added NRE services and IP capabilities, including RF, mixed-signal, security, and chiplet design.
Financial performance
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Revenue | $122.7 million | $100.3 million | Up 22.3% |
| Licensing, NRE and related revenue | $72.8 million | $52.5 million | Up 38.7%; 59.4% of revenue |
| Royalties | $49.9 million | $47.8 million | Up 4.3%; 40.6% of revenue |
| Gross profit / gross margin | $105.9 million / 86.3% | $89.6 million / 89.3% | Margin declined 3.0 percentage points |
| Operating income (loss) | $3.5 million | $(0.8) million | Operating margin was 2.8%, versus (0.8)% |
| Net income (loss) | $0.4 million | $(2.4) million | Net margin was 0.3%, versus (2.4)% |
| Cash provided by operating activities | $25.8 million | $15.2 million | Up from prior year |
Research and development expense was $72.5 million, up from $62.0 million. Total operating expenses rose 13.3% to $102.4 million. Income tax expense was $5.3 million, compared with $4.9 million. A $2.0 million gain from remeasurement of the Cipia investment contributed to 2021 pretax income; net financial income fell to $0.2 million from $3.3 million, including a $1.27 million foreign-exchange loss.
Liquidity, cash flow and obligations
At year-end, cash and cash equivalents were $33.2 million, short-term bank deposits $31.4 million, and marketable securities $90.3 million, totaling $154.9 million, compared with $159.6 million a year earlier. The decline principally reflected $29.9 million of net cash used to acquire Intrinsix. Cash provided by operations was $25.8 million; investing activities used $16.7 million and financing activities provided $3.2 million. CEVA reported no long-term debt or capital lease obligations. Contractual obligations totaled $10.4 million, primarily design-tool purchase commitments. Approximately $144.5 million of cash, deposits, and marketable securities was held by foreign subsidiaries; repatriation could incur taxes.
Material changes and business developments
- Intrinsix contributed to licensing, NRE and related revenue from its May 31, 2021 acquisition date. The purchase consideration was approximately $30.5 million net; $23.7 million was recorded as goodwill.
- Smart-sensing products increased to 27% of revenue from 22% in 2020, while connectivity products declined to 73% from 78%.
- Base-station and IoT royalties reached $28.6 million, up 28% year over year. Total device shipments using CEVA technology exceeded 1.6 billion, up 24%.
- APAC generated 72.6% of revenue, including China at 55.0%. UNISOC accounted for 21% of total revenue, up from 14% in 2020. Intel accounted for 6%, down from 15%.
Outlook, commentary and risks
Management expected another year of royalty growth in 2022, with base-station and IoT royalties—particularly RAN, Bluetooth, Wi-Fi, and sensor fusion—expected to offset anticipated declines in handset-baseband royalties, including lower Intel-related royalties following its sale of its 5G smartphone modem business. Management also anticipated continued expansion in licensing and NRE, citing 5G, Wi-Fi 6 and 7, edge AI, wearables, and Intrinsix opportunities. These are expectations, not guarantees; the filing does not provide a clear consolidated 2022 revenue or earnings guidance figure.
Management forecast 2022 cost of revenue to increase by approximately $12.5 million and R&D expense by approximately $6.5 million, mainly reflecting a full year of Intrinsix operations and continued investment. Management stated that available liquidity and operating cash flow were expected to fund operations for at least 12 months.
Key risks include reliance on a limited number of royalty and licensing customers; competition, pricing pressure, long sales and design cycles, and shipment volatility; dependence on handset baseband royalties; semiconductor supply constraints and COVID-19 uncertainty; exposure to China/APAC and geopolitical or trade restrictions; currency movements; and execution and integration risks related to Intrinsix. Intrinsix also brings exposure to U.S. government contracting, budgets, procurement rules, and contract termination. The filing reported no material legal proceedings. The audited financial statements received an unqualified opinion; management and the auditor reported effective internal controls, but their assessments excluded Intrinsix.
Important facts for investors to verify
- Whether the growth in licensing and NRE revenue, including Intrinsix’s contribution, converts into sustained royalty growth and improved operating margins.
- Whether base-station and IoT royalty gains can offset handset-baseband and Intel-related declines, and how concentrated royalty revenue remains among major customers.
- Whether the forecast increases in 2022 cost of revenue and R&D are matched by revenue growth and successful Intrinsix integration.
- How much of the reported $154.9 million liquidity is readily available to fund U.S. operations, given foreign-subsidiary balances and possible repatriation taxes.
- Whether customer-reported or estimated royalty shipments, geographic concentration, and semiconductor supply conditions materially affect future results.
- The timing and potential cash impact of tax uncertainties, the $27.2 million contingent IIA royalty obligation, and Intrinsix-related government-contract risks.