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

Financial Performance:

• Total Q3 2026 revenue increased 2% YoY to $29.1M, driven by 18% sequential royalty growth.
• Licensing and related revenue rose 2% YoY to $16.3M (56% of total); AI licensing hit a record, comprising >35% of this segment.
• Royalty revenue grew 3% YoY and 18% sequentially to $12.7M (44% of total), supported by mobile modem ramp and IoT volumes.
• Non-GAAP gross margin was 86% (vs. 89% YoY); GAAP gross margin was 85% (vs. 88% YoY).
• Non-GAAP operating income was $2.5M with a 9% margin; Non-GAAP net income rose 39% YoY to $3.8M.
• Non-GAAP diluted EPS increased 18% YoY to $0.13 and 63% sequentially.
• Cash balance stood at $221M; Days Sales Outstanding (DSO) improved to 56 days.
• GAAP net loss was $2.3M ($0.08/share) compared to $2.5M ($0.10/share) YoY.

Guidance and Future Outlook:

• Q4 2026 revenue guidance is $34M–$38M (midpoint $36M), representing ~24% sequential growth and the highest quarterly revenue in company history.
• Full-year 2026 revenue growth is expected to be approximately 11%.
• Non-GAAP expenses for FY 2026 are now expected to grow ~7% ($7M), down from previous 8% guidance due to favorable FX comparisons.
• Q4 Non-GAAP diluted EPS is expected to more than double sequentially.
• Long-term outlook remains robust with a "healthy deal flow" across Connect, Sense, and Infer segments heading into 2027.
• Modem royalties from a major US customer are expected to accelerate significantly in Q4 and continue through 2027.
• Initial NPU (NeuroPulse) royalties are projected to begin late 2026 or early 2027.

Business Segments and Product Lines:

• AI & Compute: New "Newport" AI processor family (including NewPOEM) expanded into data center infrastructure; 6 of 10 new Q3 licensing deals were AI-related.
• Connectivity: Wireless IP market share confirmed at ~68% by revenue; 3 of highest-volume customers extended agreements and added Wi-Fi 6/7 and Bluetooth IP.
• Royalty Base: Customers shipped 623M SEVA-powered devices (record quarter); Bluetooth shipments up 9%, Cellular IoT up 2% to 69M (record), Wi-Fi down 6% but 57% of units are Wi-Fi 6.
• Sensing: Motion Engine Hex secured a new agreement with a major Smart TV platform; integrated into OS and device levels.
• Mobile: Major US customer began high-volume production of internal modem in flagship smartphones; mobile royalty revenues up 20% YoY.
• Automotive: AR DSP technology now in volume production in Toyota Ram 4; multiple NPU designs targeting production in 2026-2027.

Market and Competitive Landscape:

• IPNest ranked SEVA #1 in wireless interface IP for the third consecutive year (68% market share).
• Addressable markets expanding from edge AI into AI infrastructure, targeting data center efficiency for inference systems.
• Competitive strategy focuses on "combining" technologies (e.g., Bluetooth + Wi-Fi + RF) to increase royalty content per design.
• Smartphone market faces headwinds from memory constraints and pricing, but SEVA is gaining share among lower-tier OEMs.
• AI infrastructure customers include memory suppliers and high-speed connectivity providers seeking integrated NPU capabilities.

Risks and Challenges:

• Macro Headwinds: Memory market pressures and softness in compute-intensive consumer devices (smartphones, PCs, TVs) weighed on unit volumes.
• Timing Risks: A significant multi-year connectivity agreement with a key customer was delayed from Q3 to Q4, impacting Q3 licensing revenue.
• FX Impact: Weakening USD against the Euro and Shekel created a ~20% expense hit in 2026, though comparisons are expected to improve in 2027.
• Market Share: Overall smartphone and consumer electronics addressable market size is declining YoY due to price increases.

Management Commentary and Tone:

• Management expressed strong confidence in the AI licensing trajectory and the expansion into data center infrastructure.
• Tone was cautious but optimistic regarding the mobile market, acknowledging headwinds while highlighting the "very significant ramp" expected in Q4 from a major US customer.
• Emphasis placed on disciplined capital allocation and cost management (OPEX growth below 8% for the full year).
• CEO highlighted the strategy of turning "today's licensing design wins into tomorrow's royalty streams."

Analyst Questions and Answers:

• Mobile Market: Confirmed minimal Q3 impact from US modem customer, but expects massive ramp in Q4 2026 and beyond; low-tier OEMs growing share despite soft overall market.
• AI Infrastructure Time-to-Market: Time to royalty remains 18–24 months for infrastructure, similar to edge; technology already licensed by multiple customers.
• Q4 Licensing Deal: The delayed deal is significant, multi-year, and with an existing customer expanding their technology portfolio; expected to drive strong run rates into 2027.
• Wi-Fi Mix: Wi-Fi unit shipments are down, but ASP and royalty contribution doubled YoY as Wi-Fi 6 share grew from 24% to 57% of shipments.
• Cost Structure/Headcount: Headcount fluctuations are quarterly; major 2026 expense hit was FX, not headcount; investing heavily in AI and RF while managing lean R&D elsewhere.
• NewPOEM/Ultra Applications: Targeted at 100s-1000s of TOPS inference (cloud and automotive); fits as accelerators alongside GPUs/CPU in racks or near memory/interconnect subsystems.
• Licensing Mix: ~10–14 deals per quarter; majority are existing customers adding new technologies (e.g., Wi-Fi, AI) rather than pure renewals.

Other Key Points:

• Mobilint launched Regulus AI SoC incorporating SEVA's NPU Nano and SensePo AI DSP.
• SEVA now has >50 Newport customers and >30 customers licensing both Bluetooth and Wi-Fi.
• Internal modem development by a major US customer marks the first time they moved internal modems to high-volume mainstream flagship models.
• SEVA will present at Roth Technology Conference (Nov 18), UBS Global Technology (Dec 3), and StoneX Conference (Dec 10).
• Capital expenditures totaled $1.1M for the quarter.