Ceva, Inc. Third Quarter 2026 Earnings Conference Call - CEVA INC

Financial Performance:

• Q3 2026 total revenue reached $29.1 million (up 2% YoY, driven by 18% sequential royalty growth).
• AI licensing revenues hit a record, constituting over 35% of total licensing revenues.
• Licensing and related revenues increased 2% YoY to $16.3 million (56% of total revenue).
• Royalty revenues increased 3% YoY and 18% sequentially to $12.7 million (44% of total revenue), fueled by internally developed modem ramp and record IoT shipments.
• Non-GAAP net income rose 39% to $3.8 million; Non-GAAP diluted EPS increased 18% to $0.13.
• Non-GAAP operating margin was 9%; GAAP gross margin was 85% (Non-GAAP 86%).
• Operating expenses were kept at the low end of guidance ($22.5 million Non-GAAP, $28.3 million GAAP).
• Balance sheet remained strong with $221 million in cash and equivalents; Days Sales Outstanding (DSO) improved to 56 days from 70 days.
• 623 million SIVA-powered devices shipped (record quarterly volume), including 82 million mobile units.

Guidance and Future Outlook:

• Q4 2026 revenue is guided at $34–$38 million (midpoint ~24% sequential growth), representing the highest quarterly revenue in company history.
• Q4 Non-GAAP diluted EPS is expected to more than double sequentially, driven by the smartphone modem ramp and seasonality.
• Full-year 2026 revenue growth is projected at approximately 11%.
• Full-year Non-GAAP expense growth is revised down to ~7% ($7 million) due to favorable foreign exchange comparisons.
• AI infrastructure licensing has begun, with initial royalties expected to ramp through 2027 and 2028.
• NPU royalties from customers like Mobilint are expected to begin around end of 2026/early 2027.
• Management expects a robust pipeline for Connect, Sense, and Infer technologies heading into 2027.

Business Segments and Product Lines:

• AI/Infer: Expanded "Newport" family of AI processors launched to enter AI infrastructure (data centers), targeting memory and connectivity suppliers; 6 of 10 new licensing deals were AI-related.
• Connectivity: Market leader in wireless interface IP with 68% share (IPnest); 30+ customers license both Bluetooth and Wi-Fi; Wi-Fi 6 unit share doubled to 57%.
• Sense: Secured a new agreement for "Motion Engine" technology with a top TV brand; mobile royalties grew 20% YoY despite volume headwinds.
• Modems: Internal modem development at a major US customer ramped into high-volume production for mainstream flagship smartphones, expected to accelerate in Q4 and 2027.
• Automotive: ARDSP technology is in volume production in high-volume vehicles (e.g., Ram 4, Toyota); NPU designs expected to enter production within the year.
• Deal Activity: Signed 10 new licensing agreements in Q3, including three first-time customers; a significant multi-year connectivity deal with an existing customer was delayed to Q4.

Market and Competitive Landscape:

• Connectivity: SIVA ranked #1 in wireless interface IP revenue for the third consecutive year with 68% market share.
• AI Market: Expansion from edge AI to AI infrastructure (data centers) to improve inference efficiency; competition noted with GPU/CPU providers, but SIVA positions its NPU as an efficiency add-on.
• Consumer Electronics: Compute-intensive markets (smartphones, PCs, TVs) faced headwinds due to memory market pressures and price increases, though lower-tier OEMs gained share.
• IoT: Strong growth in board-based IoT (Consumer IoT +4% YoY; Industrial IoT +120% YoY); Cellular IoT shipments hit a record 69 million units.

Risks and Challenges:

• Market Volatility: Headwinds in compute-intensive consumer devices (smartphones, PCs, TVs) due to memory market conditions and pricing pressures.
• Execution Timing: A significant multi-year connectivity deal expected in Q3 was delayed to Q4, impacting immediate revenue recognition.
• Currency Fluctuations: Significant impact from USD weakening against the Euro and Shekel in 2026, accounting for ~20% of expense variance.
• Tape-out Timelines: AI and NPU royalties depend on successful tape-outs and subsequent volume ramps, with time-to-royalty typically ranging from 18 to 24 months.

Management Commentary and Tone:

• Management expressed strong confidence in the diversified pipeline and the transition of AI licensing into tangible royalty streams.
• Tone was optimistic regarding the "new smartphone warranty cycle" and the scalability of the connectivity franchise.
• Emphasis placed on strategic discipline: maintaining lean cost structures while aggressively investing in AI R&D and expanding into new markets like AI infrastructure.
• Amir Panoush (CEO) highlighted the strategy of becoming a "one-stop shop" by selling multiple technologies (Connect + Sense + Infer) to existing customers.
• Yaniv Ariyeli (CFO) noted that expense guidance was lowered primarily due to foreign exchange headwinds which are expected to normalize.

Analyst Questions and Answers:

• Mobile Market: Addressed concerns over smartphone volume; noted that while overall market is soft, SIVA is gaining share among lower-tier customers, with the major US customer ramping significantly in Q4/2027.
• AI Infrastructure Traction: Clarified that NewPro Ultra is for inference acceleration (not training) targeting OEMs and memory/connectivity suppliers; time to market is similar to edge AI (8-24 months).
• Licensing Pipeline: Confirmed a multi-year deal with an existing customer delayed to Q4 will drive higher run rates; Q4 revenue guidance reflects this deal plus standard seasonality.
• Wi-Fi Trends: Explained that while total Wi-Fi units were flat/down, the mix shift to high-value Wi-Fi 6 (up to 57% of volume) doubled royalty contributions despite unit decline.
• Cost Structure: Explained headcount stability despite revenue growth; expense control achieved through FX management and operational discipline.
• Automotive Royalties: Confirmed immediate royalty generation from automotive ARDSP (Toyota/Ram) and upcoming NPU royalties in 2027.

Other Key Points:

• The company employs 394 people, including 315 engineers, with a focus on balancing lean operations with R&D investment.
• Strategy involves deepening relationships with leading semiconductor companies and OEMs to increase royalty content per device.
• Upcoming investor conferences include Roth Technology Conference (Nov 18), UBS Global Technology and AI Conference (Dec 3), and StoneX 15th Annual Discovery 101 Conference (Dec 10).
• The "Newport" AI processor family extends SIVA's reach beyond the edge into infrastructure, targeting 50+ existing customers plus new memory/connectivity partners.