CEVA, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with the three months ended March 31, 2019. Unaudited U.S. GAAP financial statements. CEVA licenses wireless connectivity and smart-sensing intellectual property for semiconductor and device markets.
Key financial results
Amounts are in U.S. dollars; millions except per-share data and percentages.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Licensing and related revenue | $14.5 | $11.0 |
| Royalty revenue | $9.1 | $6.0 |
| Total revenue | $23.6 | $17.0 |
| Gross profit / gross margin | $20.9 / 88% | $14.9 / 88% |
| Operating expenses | $22.5 | $17.9 |
| Operating loss | $(1.7) | $(2.9) |
| Net loss / diluted loss per share | $(1.2) / $(0.05) | $(2.3) / $(0.10) |
| Cash provided by operating activities | $6.4 | $4.7 |
Revenue rose 39% year over year: licensing revenue increased 32% and royalties 53%. Customers reported shipments of 261 million chipsets incorporating CEVA technology, up 49% from Q1 2019. Connectivity products provided 76% of revenue, versus 72%; smart sensing accounted for 24%, versus 28%. Research and development expense was $15.1 million, or 64% of revenue, compared with $12.3 million, or 73%.
Balance sheet and liquidity
At March 31, 2020, cash and cash equivalents were $22.9 million, short-term bank deposits $58.5 million, marketable securities $67.9 million, and long-term bank deposits $1.3 million: $150.6 million combined, versus $150.0 million at December 31, 2019. Current assets were $181.2 million and current liabilities $27.6 million. Total assets were $295.9 million and stockholders’ equity $249.3 million.
Operating cash flow was $6.4 million; investing activities used $2.9 million and financing activities used $3.4 million. The company repurchased 202,392 shares for $4.8 million during the quarter. No borrowing or funded debt balance is reported in the supplied filing text; operating lease liabilities totaled $10.2 million, including $2.4 million current. Management said available cash, deposits, marketable securities, and operating cash flow were expected to fund operations for at least 12 months.
Material changes and management commentary
- Revenue growth reflected higher Bluetooth licensing revenue, Hillcrest Labs sensor-fusion royalties, and a new low-cost smartphone model. CEVA completed 13 licensing deals, all for base-station or IoT applications, including four 5G agreements and two Wi-Fi 6 agreements.
- Operating expenses increased, principally due to higher headcount and Hillcrest Labs costs, lower research grants, a higher doubtful-account allowance, increased equity compensation, and additional intangible-asset amortization. The Hillcrest acquisition was completed in July 2019.
- Customer concentration remained material: the five largest customers represented 45% of total revenue, compared with 63% a year earlier. One customer contributed 16%; three royalty customers collectively represented 70% of royalty revenue.
- COVID-19 had a relatively insignificant effect on Q1 results, according to management, but consumer-electronics demand softened by quarter-end and more broadly in Q2. Management could not quantify the pandemic’s full-year effects and warned of potential near-term softness in royalties and customer demand. Operations continued with most employees working remotely.
Outlook, risks, and other items
The filing provides no specific Q1 2020 or full-year 2020 revenue or earnings guidance. CEVA reiterated its previously stated 2022 targets, measured against 2018: licensing and related revenue growth of approximately 10%–20%, royalty revenue of approximately twice the 2018 level, and non-GAAP net income of approximately three times the 2018 level. These are forward-looking targets, not guarantees; COVID-19 adds uncertainty.
Key risks include pandemic-driven demand and collection disruption, reliance on a limited number of customers and handset royalties, customer shipment and licensing-deal variability, competitive and royalty-rate pressure, international and foreign-exchange exposure, and dependence on research grants and tax benefits. The allowance for credit losses on receivables rose to $1.2 million from $0.3 million at year-end. Management reported no material litigation and stated disclosure controls were effective as of March 31, 2020. The adoption of the expected-credit-loss accounting standard had no material financial-statement impact.
Investor facts to verify
- Whether COVID-19 and consumer-electronics demand changes materially affect royalty shipments, licensing activity, collections, and liquidity after Q1.
- Whether reported chipset shipments and customer royalty estimates translate into sustained royalty revenue, particularly given customer concentration.
- Progress toward the 2022 targets and the assumptions underlying those targets; the filing does not provide quarterly or annual 2020 guidance.
- Receivables quality and the increase in the credit-loss allowance, alongside the company’s substantial cash and investment balances.
- Ongoing operating-cost growth, share repurchases, and lease obligations relative to cash generation.