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

Explicit Guidance:

• Q4 2026 Revenue: $34 million – $38 million (midpoint implies highest quarterly revenue in company history); approximately 24% sequential growth.
• Q4 2026 Non-GAAP Diluted EPS: Expected to more than double sequentially.
• Q4 2026 Gross Margin: ~88% (GAAP) and ~89% (Non-GAAP), excluding ~$0.2M equity compensation and ~$1.1M amortization.
• Q4 2026 Operating Expenses: GAAP OPEX $27.6M – $28.6M (includes ~$4.3M equity comp, ~$0.1M amortization, ~$0.1M acquisition costs); Non-GAAP OPEX $23.1M – $24.1M.
• Q4 2026 Net Financial Income: ~$2.0 million.
• Q4 2026 Income Tax Expense: ~$1.8 million.
• Q4 2026 Share Count: ~30.1 million weighted average diluted shares (GAAP and Non-GAAP).
• Full-Year 2026 Revenue Growth: ~11% (driven by Q4 midpoint).
• Full-Year 2026 Non-GAAP Expense Growth: ~7% (approx. $7M total), lower than previous guidance of 8%.
• FY2027 Outlook: Modems expected to serve as a multi-year growth driver through 2027 and beyond; NPU royalties expected to ramp significantly in 2027.

Business-Segment Outlook:

• AI Licensing & Infrastructure: Expanded "Newport Ultra" (NPU) family now targets AI infrastructure (data centers) beyond edge; multiple customers licensed this new tech last and current quarter; initial NPU royalties expected end of 2026/early 2027, with further ramping in 2028; time-to-royalty estimated at 18–24 months.
• NPU/Infer: Initial royalties expected end of 2026/early 2027 from Mobilint's Regulus AI SoC and other tape-outs; 2027 targets to see more ramping from design wins; high-volume automotive NPU ramp expected in 2027.
• Connectivity (Wireless): Market share of ~68% in wireless interface IP; three high-volume customers extended agreements and added Wi-Fi 6/7 and Bluetooth IP; >30 customers now license both Bluetooth and Wi-Fi; Wi-Fi 6 unit mix to continue growing (57% of Wi-Fi units in Q3 vs 24% YoY) driving higher ASPs.
• Sense (Motion Engine): New agreement with target of one of the world's largest TV brands for "Motion Engine Hex" technology; integration extends presence to both platform and device levels of Smart TV ecosystem.
• Mobile Royalties: Significant volume ramp expected in Q4 2026 and continuing into 2027+ from a major US customer's internally developed modems in mainstream flagship models; low-tier customer share gains expected to offset overall market softness.

Market and Competitive Outlook:

• Compute-Intensive Markets: Smartphones, PCs, and TVs remain under pressure due to memory market headwinds and price increases, leading to a decline in total addressable market size.
• Wi-Fi Transition: Accelerating shift from Wi-Fi 4 to Wi-Fi 6 expected to drive double-impact on revenue (volume + ASP) as legacy products roll off; >40 customers now license Wi-Fi 6.
• Mobile 6G: Technology positioned as upgradable for 6G coming in the next few years.
• Satellite Connectivity: Offering Penta-G solution integrating cellular and satellite communication for 5G and 5G-Advanced standards.
• Automotive: High-volume production already running with Renesas and NXP (e.g., Toyota RAV4 platform); requests for high-performance multi-core NPU configurations for advanced autonomous driving expected to increase.

Macro / Industry Outlook:

• Foreign Exchange (FX): Significant headwind in 2026 due to USD weakening against Euro and Shekel (impacting ~300-400 engineers); FX impact expected to be less severe in 2027 comparisons.
• Supply Chain: Customers ramping internally developed modems and NPU tape-outs; no specific supply shortages mentioned.
• Pricing/ASP: Higher ASPs driven by technology mix shifts (Wi-Fi 6 vs legacy, 5G vs 3G/4G).

Strategic Initiatives:

• Product Launches: "Newport Ultra" AI processor family launched to expand reach into AI infrastructure; "Newport" family already has >50 customers.
• Market Expansion: Moving from Edge AI to AI Infrastructure (Data Centers); expanding footprint in Smart TV ecosystem via OS-level integration and device-level IP.
• Customer Strategy: "One-stop shop" approach to selling multiple IP technologies (Connect, Sense, Infer) to existing customers to increase royalty content per device.
• Capital Allocation: Maintaining disciplined expense management ($7M expense growth target) while investing in AI and new market R&D; open to selective strategic M&A.

Risks and Headwinds to Outlook:

• Market Weakness: Continued headwinds in compute-intensive consumer devices (smartphones, PCs, TVs) due to memory constraints and pricing pressures.
• Timing Delays: Large multi-year connectivity deal delayed from Q3 to early Q4; potential execution risk on large-scale modem ramp.
• Currency Risk: Continued FX volatility could impact operating costs if USD weakness persists against Euro/Shekel.
• Execution: Reliance on successful tape-out and volume ramp of NPU and modem designs by partners (e.g., Mobilint, US Customer) within 18-24 month windows.

Management Tone on the Future:

• Confidence: "Very encouraged" regarding AI infrastructure traction, modem ramp, and diversified pipeline; confident in "strong" Q4 performance.
• Discipline: Emphasizes "disciplined assessment" of guidance; acknowledges market headwinds but expects Q4 to be a record quarter.
• Long-term View: Strategy focused on converting licensing wins into long-term royalty streams; expects multiple growth drivers (AI, Connectivity, Modems) to sustain growth through 2027 and beyond.
• Change vs. Prior: Updated full-year expense growth guidance downward (from 8% to 7%); confirmed highest-ever Q4 revenue guidance ($34-38M).

Miscellaneous:

• Cash Position: ~$221 million in cash/cash equivalents/marketable securities; Days Sales Outstanding reduced to 56 days (from 70).
• Headcount: 394 employees (315 engineers); headcount fluctuates quarterly but R&D investment in AI and RF/Connectivity remains high.
• Upcoming Conferences: Roth Technology Conference (Nov 18, 2026), UBS Global Technology & AI Conference (Dec 3, 2026), StoneX Discovery Conference (Dec 10, 2026).