CEVA, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited and prepared under U.S. GAAP. CEVA licenses wireless connectivity and smart-sensing intellectual property and provides design services, including through Intrinsix, acquired in May 2021.
Financial performance and position
Amounts below are in millions of U.S. dollars except per-share data. Comparisons are year over year.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $32.8 | $25.0 | $88.6 | $72.2 |
| Licensing, NRE and related revenue | $21.6 | $12.4 | $51.5 | $40.4 |
| Royalties | $11.2 | $12.5 | $37.1 | $31.7 |
| Gross profit / margin | $28.0 / 85% | $22.5 / 90% | $77.7 / 88% | $63.9 / 89% |
| Operating income (loss) | $1.7 | $0.0 | $2.0 | $(3.2) |
| Net income (loss) | $(0.2) | $(0.7) | $(3.5) | $(3.0) |
| Diluted loss per share | $(0.01) | $(0.03) | $(0.15) | $(0.14) |
- Q3 revenue rose 31%; licensing/NRE increased 74%, while royalties declined 11%. Nine-month revenue increased 23%, with licensing/NRE up 27% and royalties up 17%.
- Q3 operating income improved from approximately break-even; the nine-month period moved from an operating loss to income. Net loss for the nine months nevertheless widened, mainly reflecting higher income-tax expense ($5.8 million versus $2.5 million).
- Q3 gross margin fell five percentage points, and nine-month margin fell one point, primarily due to higher service costs including Intrinsix NRE personnel costs.
- Operating cash flow was $14.8 million for the first nine months, versus $8.3 million a year earlier. Investing cash flow was $(4.6) million, including $29.9 million of net cash used for the Intrinsix acquisition; financing cash flow was $3.2 million, primarily from stock-award exercises.
- At September 30, cash and equivalents were $34.3 million, short-term deposits $36.8 million and marketable securities $74.1 million, totaling $145.2 million, compared with $159.7 million at year-end 2020. The company reported no borrowings; operating lease liabilities totaled $9.3 million.
- Total assets were $317.7 million and stockholders’ equity $269.7 million. Intrinsix acquisition accounting included preliminary goodwill of $24.4 million; the purchase-price allocation remained subject to finalization.
Material changes and business developments
- CEVA acquired Intrinsix on May 31, 2021, for stated consideration of approximately $33.1 million, expanding into chip-design services and aerospace and defense, and adding RF, mixed-signal, security and chiplet-related capabilities.
- Connectivity products represented 73% of Q3 revenue and 75% of nine-month revenue; smart-sensing products represented 27% and 25%, respectively.
- Asia Pacific generated 74% of nine-month revenue; China alone accounted for 61% ($54.5 million), up from 52% a year earlier. UNISOC represented 32% of Q3 revenue and 25% of nine-month revenue.
- Management reported 25 Q3 licensing and NRE agreements, including 14 for connectivity and 11 for smart sensing; 13 were with first-time customers. It also reported record-high device shipments for Bluetooth, Wi-Fi and cellular IoT IP for a second consecutive quarter.
Outlook, commentary and risks
- No specific near-term revenue or earnings guidance is provided. Management expects royalty growth from base-station and IoT applications over the next few years and believes available liquidity and operating cash flow can fund operations for at least 12 months, subject to assumptions.
- Management cited demand for connectivity and smart-sensing IP, Wi-Fi 6 licensing activity, TWS products and potential growth from Intrinsix. These are forward-looking expectations, not assured outcomes.
- Key risks include customer and royalty concentration, dependence on handset baseband markets, sales-cycle and shipment volatility, semiconductor supply constraints, COVID-19 uncertainty, U.S.–China trade and geopolitical exposure, foreign-exchange movements, competition, and successful integration and monetization of Intrinsix. Intrinsix’s government-related business is exposed to funding, contract-termination and compliance risks.
- Foreign-exchange losses were $0.4 million in Q3 and $0.8 million for the first nine months, compared with gains in the prior-year periods. Management also noted increased expense exposure from NIS and euro movements.
- The filing reports no legal proceedings believed likely to have a material effect. Management concluded disclosure controls were effective at September 30, 2021.
Important facts for investors to verify
- Track whether Q3’s strong licensing/NRE growth continues and whether royalties recover after the quarterly decline.
- Assess reliance on UNISOC, major royalty-paying customers, China and Asia Pacific, and the effect of customer or end-market changes.
- Monitor Intrinsix integration, acquired-business contribution, final purchase-price allocation and potential government-contract volatility.
- Review cash deployment and liquidity, including the substantial foreign-held cash balance and possible tax costs of repatriation.
- Reconcile the share-repurchase disclosures: the financial statements and Note 14 say no shares were repurchased in 2021 and identify 202,392 shares purchased in 2020; a sentence in MD&A appears to attribute those 2020 purchases to the first nine months of 2021.