CEVA, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts are U.S. dollars; millions are used unless otherwise noted. Comparisons are with Q1 2021 unless stated otherwise.
Business context
CEVA licenses wireless connectivity and smart-sensing intellectual property and provides integrated IP and chip-design services, including through Intrinsix, acquired in May 2021. Its technologies serve mobile, consumer, automotive, industrial, IoT, and aerospace and defense markets. The company reports one operating segment.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $34.4 million | $25.4 million | Up 35%; quarterly record |
| Licensing, NRE and related revenue | $22.4 million | $14.4 million | Up 56%; Intrinsix NRE contributed |
| Royalty revenue | $12.0 million | $11.0 million | Up 9% |
| Gross profit / margin | $28.0 million / 81% | $23.0 million / 91% | Margin fell 10 percentage points, mainly due to Intrinsix service and NRE costs |
| Operating income (loss) | $0.5 million | $(1.3) million | Improved |
| Net loss / diluted loss per share | $(1.7) million / $(0.07) | $(3.6) million / $(0.16) | Loss narrowed; Q1 2022 included a $1.1 million marketable-equity-securities remeasurement loss |
| Cash provided by operating activities | $9.8 million | $15.2 million | Down $5.4 million |
| Cash, deposits and marketable securities | $162.4 million | $154.9 million at Dec. 31, 2021 | Up $7.5 million |
Operating expenses were $27.5 million, up from $24.4 million, principally reflecting Intrinsix-related employee and CAD-tool costs. Income tax expense was $1.3 million, versus $2.3 million; management cited the French IP Box regime’s lower rate on qualifying income, partly offset by higher withholding taxes. Q1 2022 comprehensive loss was $3.8 million, including $2.1 million of other comprehensive loss, largely reflecting unrealized losses on available-for-sale securities.
Balance sheet and liquidity
At March 31, 2022, total assets were $335.0 million and stockholders’ equity was $278.1 million. Current assets were $197.3 million and current liabilities $40.8 million. The balance sheet shows no borrowings; operating lease liabilities totaled $7.9 million, including $3.1 million current. Cash, deposits and marketable securities totaled $162.4 million, of which $151.5 million was held by foreign subsidiaries. Management said available liquidity and operating cash flow should fund operations for at least 12 months, subject to revenue and expense assumptions.
Operating cash flow was lower year over year. Investing activities used $4.8 million, compared with $16.2 million provided in Q1 2021, reflecting differences in deposit and securities purchases, maturities and sales. Financing activities provided $1.7 million, primarily from stock-award exercises. Cash and cash equivalents ended the quarter at $39.8 million. Available-for-sale corporate bonds had $3.4 million of gross unrealized losses, which the company attributed to the sharp rise in interest rates; it recorded no material credit-loss allowance.
Material changes and operating indicators
- Customers reported 531 million CEVA-enabled chipset shipments, up 56% year over year. Shipments in the base-station and IoT category rose 103% to 431 million units; Bluetooth shipments reached a record 333 million.
- Smart-sensing products increased to 25% of revenue from 18%; connectivity products represented 75%, versus 82%.
- Asia Pacific generated 77% of revenue; China alone generated approximately 67%. The five largest customers represented 47% of revenue, down from 64%. UNISOC represented 12% of revenue.
- Seven of 14 licensing and NRE deals signed were for wireless connectivity. CEVA also reported a lead customer for its NeuPro-M edge-AI processor and two MotionEngine licensing deals.
- Intrinsix contributed NRE revenue and increased cost of revenue and operating expenses compared with the prior period, when CEVA had not yet acquired the business.
Outlook, commentary and risks
The filing does not provide a clear quantified company-wide revenue or earnings forecast. Management expects royalty growth from base-station and IoT products over the next few years and believes liquidity is sufficient for at least the next 12 months. It also said COVID-19’s full fiscal-2022 effect could not be estimated; China lockdowns had affected customers, and supply-chain constraints could continue to distort demand and seasonality.
Key risks include dependence on a limited number of customers and royalty payers; revenue concentration in China and broader Asia; licensing deal timing and customer shipment variability; royalty-rate and competitive pressure; semiconductor cyclicality and supply constraints; foreign-exchange exposure; and uncertainty in integrating Intrinsix and growing its government-related business. The company noted risks from U.S.–China trade tensions, sanctions and other geopolitical developments. It reported no legal proceedings believed likely to have a material effect, and management concluded disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Whether licensing growth and record device shipments translate into sustained royalty growth, particularly in base-station and IoT products.
- Customer concentration, including major royalty payers, and the effect of changes in customer products, design wins or shipment volumes.
- China and Asia exposure, including potential effects of lockdowns, trade restrictions and geopolitical developments.
- Whether gross margins recover as Intrinsix-related NRE revenue and costs evolve, and whether the acquisition delivers expected growth.
- The duration and recoverability of unrealized losses on the corporate-bond portfolio, and the amount of liquidity practically available from foreign subsidiaries.
- The continuation of management’s 12-month liquidity assessment and the impact of COVID-19, supply-chain conditions and foreign-exchange movements.