10-Q 1 ceva20230630_10q.htm FORM 10-Q ceva20230630_10q.htm
0001173489 CEVA INC false --12-31 Q2 2023 313 313 0.001 0.001 5,000,000 5,000,000 0 0 0 0 0.001 0.001 45,000,000 45,000,000 23,595,160 23,595,160 23,539,104 23,215,439 56,056 379,721 1,350,825 915,698 0 0 3 1 2 3 3 0 0 136,091 The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant. During the first quarter of 2018, the Company entered into an agreement to acquire certain NB-IoT technologies in the amount of $2,800, of which technologies valued at $600 have not been received and have been written off during 2022. Of the $2,200, $210 has not resulted in cash outflows as of December 31, 2022. In addition, the Company participated in programs sponsored by the Hong Kong government for the support of the above investment, and as a result, the Company received during 2019 an amount of $239 related to the NB-IoT technologies, which was reduced from the gross carrying amount of intangible assets. The Company recorded the amortization cost of the NB-IoT technologies in “cost of revenues” on the Company’s consolidated statements of income (loss). China Represent options granted to non-employee directors of the Company only. As of December 31, 2022, there were no outstanding or exercisable SAR units left and no outstanding or exercisable options granted to employees left. During 2022, the Company recorded an impairment charge of $3,556 in operating expenses with respect to Immervision technology acquired in August 2019, as the Company has decided to cease the development of this product line. 00011734892023-01-012023-06-30 xbrli:shares 00011734892023-08-04 thunderdome:item iso4217:USD 00011734892023-06-30 00011734892022-12-31 iso4217:USDxbrli:shares 0001173489us-gaap:LicenseMember2023-01-012023-06-30 0001173489us-gaap:LicenseMember2022-01-012022-06-30 0001173489us-gaap:LicenseMember2023-04-012023-06-30 0001173489us-gaap:LicenseMember2022-04-012022-06-30 0001173489us-gaap:RoyaltyMember2023-01-012023-06-30 0001173489us-gaap:RoyaltyMember2022-01-012022-06-30 0001173489us-gaap:RoyaltyMember2023-04-012023-06-30 0001173489us-gaap:RoyaltyMember2022-04-012022-06-30 00011734892022-01-012022-06-30 00011734892023-04-012023-06-30 00011734892022-04-012022-06-30 0001173489ceva:CommonStockOutstandingMember2022-12-31 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Table of Contents

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

For the quarterly period ended: June 30, 2023

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

For the transition period from to

 

Commission file number: 000-49842

 


 

CEVA, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

77-0556376

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

  

15245 Shady Grove Road, Suite 400, Rockville, MD 20850

20850

(Address of Principal Executive Offices)

(Zip Code)

 

(240)-308-8328

(Registrants Telephone Number, Including Area Code)

 


 

Securities registered pursuant to Section 12(b) of the Act

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.001 per share

CEVA

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    

Emerging growth company

  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 23,633,018 of common stock, $0.001 par value, as of August 4, 2023.

 

 

 

TABLE OF CONTENTS

 

 

Page

PART I.

FINANCIAL INFORMATION

5

Item 1.

Interim Condensed Consolidated Balance Sheets at June 30, 2023 (unaudited) and December 31, 2022

5

 

Interim Condensed Consolidated Statements of Loss (unaudited) for the three and six months ended June 30, 2023 and 2022

6

 

Interim Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2023 and 2022

7

 

Interim Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2023 and 2022

8

 

Interim Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2023 and 2022

10

 

Notes to the Interim Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4.

Controls and Procedures

36

          

 

PART II.         

OTHER INFORMATION

 

Item 1.    

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3

Defaults Upon Senior Securities

37

Item 4

Mine Safety Disclosures

37

Item 5

Other Information

37

Item 6        

Exhibits

38

SIGNATURES

38

 

 

FORWARD-LOOKING STATEMENTS

 

FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Quarterly Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.  All statements other than statements of historical fact are statements that could be deemed forward-looking statements.  Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” or other similar words.  Forward-looking statements include the following:

 

 

Our belief that having chip design expertise as part of our offerings through our Intrinsix business unit strengthens our relationships with customers, streamlines IP adoption, generates recurrent royalties and more, and that Intrinsix’s experience and customer base in the growing chip development programs with the U.S. Department of Defense and Defense Advanced Research Projects Agency (DARPA) together with its IP offerings for processor security and chiplets extends our serviceable market and revenue base;

 

 

Our belief that our portfolio of wireless connectivity and smart sensing technologies address some of the most important megatrends, including 5G, generative AI, industrial automation and vehicle electrification, and our belief in the continued interest in our portfolio, in both traditional and new areas;

 

 

Our belief that our PentaG2 platform for 5G handsets and 5G IoT endpoints is the most comprehensive baseband IP platform in the industry today and provides newcomers and incumbents with a comprehensive solution to address the need for 5G processing for smartphones, fixed wireless access, satellite communications and a range of connected devices such as robots, cars, smart cities and other devices for industrial applications;

 

 

Our belief that our specialization and technological edge in signal processing platforms for 5G base station radio access network (RAN) and our PentaG RAN platform put us in a strong position to capitalize on the growing 5G RAN demand and the its disintegration toward new architecture and form factors, and that our PentaG RAN platform for 5G RAN settings is the most comprehensive baseband processor IP in the industry today and provides customers and incumbents with a comprehensive solution to address the need for 5G;

 

 

Our belief that our Bluetooth, Wi-Fi, Ultra Wide Band (UWB) and cellular IoT IPs allow us to address the high volume IoT industrial, consumer and smart home market, and expectation that the overall addressable market will be more than 15 billion devices annually by 2027 based on research from ABI Research;

 

 

Our belief that Wi-Fi presents a significant royalty opportunity given our dominant market position in licensing Wi-Fi 6 to more than 35 customers to date;

 

 

Our belief that the growing market for True Wireless Stereo (TWS) earbuds, smartwatches, AR and VR headsets, and other wearable assisted devices, offers an incremental growth segment for us for our software IP;

 

 

Our belief that our second generation SensPro2 sensor hub DSP family provides highly compelling offerings for any sensor-enabled devices and applications and enables us to address the transformation in devices enabled by these applications and expand our footprint and content in smartphones, drones, consumer cameras, surveillance, automotive safety, voice-enabled devices and industrial IoT applications;

 

 

Statements regarding third-party estimates of industry growth and future market conditions, including the expectation that camera-enabled devices incorporating computer vision and AI will exceed 1 billion units and devices incorporating voice AI will reach 600 million units by 2025 per research from Yole Group;

 

 

 

Our belief that our newest generation family of AI NPUs present a highly-efficient and high performance architecture to enable generative and classic AI on any device including communication gateways, optically connected networks, cars, notebooks and tablets, AR/VR headsets, smartphones, and any other cloud or edge use case from the edge all the way to the cloud, , and that more than 2.5 billion Edge AI devices will ship annually by 2026 based on research from Yole Group;

 

 

Our belief that the Hillcrest Labs sensor fusion business unit allows us to address an important technology piece used in personal computers, robotics, TWS earbuds, smart TVs and many other smart sensing IP products, in addition to our existing portfolio for camera-based computer vision and AI processing, and microphone-based sound processing;

 

 

Our expectation that we are well positioned for long-term growth in revenues in the base station and IoT product categories, including from a range of different products at different royalty ASPs, spanning from high volume Bluetooth and Wi-Fi to high value sensor fusion and base station RAN;

 

 

Our expectation that a significant portion of our future revenues will continue to be generated by a limited number of customers, in part due to consolidation in the semiconductor industry;

 

 

Our belief that volatility in the global economic climate and financial markets could result in a significant change in the value of our investments;

 

 

Our anticipation that our cash and cash equivalents, short-term bank deposits and marketable securities, along with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months;

 

 

Our expectation that we will continue to experience the effect of exchange rate and currency fluctuations on an annual and quarterly basis; and

 

 

Our belief that fluctuations in high interest rates within our investment portfolio will not have a material effect on our financial position on an annual or quarterly basis.

 

 

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The forward-looking statements contained in this report are based on information that is currently available to us and expectations and assumptions that we deem reasonable at the time the statements were made. We do not undertake any obligation to update any forward-looking statements in this report or in any of our other communications, except as required by law. All such forward-looking statements should be read as of the time the statements were made and with the recognition that these forward-looking statements may not be complete or accurate at a later date.

 

Many factors may cause actual results to differ materially from those expressed or implied by the forward-looking statements contained in this report. These factors include, but are not limited to, those risks set forth in Part II – Item 1A – “Risk Factors” of this Form 10-Q.

 

This report contains market data prepared by third party research firm. Actual market results may differ from their projections.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

 

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

 


U.S. dollars in thousands, except share and per share data

 

  

June 30,
2023

  

December 31,
2022

 
  

Unaudited

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $27,511  $21,285 

Short-term bank deposits

  10,433   6,114 

Marketable securities

  97,703   112,080 

Trade receivables (net of allowance for credit losses of $313 as of both June 30, 2023 and December 31, 2022)

  31,872   31,250 

Prepaid expenses and other current assets

  7,753   6,896 

Total current assets

  175,272   177,625 

Long-term assets:

        

Bank deposits

  -   8,205 

Severance pay fund

  7,916   8,475 

Deferred tax assets, net

  8,936   8,599 

Property and equipment, net

  6,868   7,099 

Operating lease right-of-use assets

  9,836   10,283 

Goodwill

  76,771   74,777 

Intangible assets, net

  6,907   6,680 

Investments in marketable equity securities

  172   408 

Other long-term assets

  7,595   6,291 

Total long-term assets

  125,001   130,817 

Total assets

 $300,273  $308,442 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Trade payables

 $1,104  $1,995 

Deferred revenues

  3,788   3,168 

Accrued expenses and other payables

  5,563   6,660 

Accrued payroll and related benefits

  12,777   18,473 

Operating lease liabilities

  2,895   2,982 

Total current liabilities

  26,127   33,278 

Long-term liabilities:

        

Accrued severance pay

  8,702   9,064 

Operating lease liabilities

  6,239   6,703 

Other accrued liabilities

  621   526 

Total long-term liabilities

  15,562   16,293 

Stockholders’ equity:

        

Preferred Stock: $0.001 par value: 5,000,000 shares authorized; none issued and outstanding

      

Common Stock: $0.001 par value: 45,000,000 shares authorized; 23,595,160 shares issued at June 30, 2023 and December 31, 2022. 23,539,104 and 23,215,439 shares outstanding at June 30, 2023 and December 31, 2022, respectively

  24   23 

Additional paid in-capital

  244,250   242,841 

Treasury stock at cost (56,056 and 379,721 shares of common stock at June 30, 2023, and December 31, 2022, respectively)

  (1,462)  (9,904)

Accumulated other comprehensive loss

  (5,583)  (6,249)

Retained earnings

  21,355   32,160 

Total stockholders’ equity

  258,584   258,871 

Total liabilities and stockholders’ equity

 $300,273  $308,442 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)

 

U.S. dollars in thousands, except per share data

 


 

   

Six months ended

      Three months ended       
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues:

                               

Licensing, NRE and related revenue

  $ 37,522     $ 44,516     $ 16,801     $ 22,123  

Royalties

    17,385       23,070       9,371       11,072  

Total revenues

    54,907       67,586       26,172       33,195  

Cost of revenues

    10,887       13,229       5,572       6,825  

Gross profit

    44,020       54,357       20,600       26,370  

Operating expenses:

                               

Research and development, net

    40,385       39,748       19,594       19,538  

Sales and marketing

    5,840       5,646       2,795       2,723  

General and administrative

    8,217       7,271       4,169       3,635  

Amortization of intangible assets

    645       1,500       316       750  

Total operating expenses

    55,087       54,165       26,874       26,646  

Operating income (loss)

    (11,067 )     192       (6,274 )     (276 )

Financial income, net

    2,576       695       1,121       413  

Remeasurement of marketable equity securities

    (236 )     (1,816 )     (119 )     (685 )

Loss before taxes on income

    (8,727 )     (929 )     (5,272 )     (548 )

Income tax expense

    1,963       1,890       546       575  

Net loss

  $ (10,690 )   $ (2,819 )   $ (5,818 )   $ (1,123 )
                                 

Basic and diluted net loss per share

  $ (0.46 )   $ (0.12 )   $ (0.25 )   $ (0.05 )
                                 

Weighted-average shares used to compute net loss per share (in thousands):

                               

Basic and diluted

    23,405       23,139       23,476       23,174  

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

 

U.S. dollars in thousands

 


 

    Six months ended     Three months ended  
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net loss:

  $ (10,690 )   $ (2,819 )   $ (5,818 )   $ (1,123 )

Other comprehensive income (loss) before tax:

                               

Available-for-sale securities:

                               

Changes in unrealized losses

    867       (4,632 )     137       (1,793 )

Reclassification adjustments for (gains) losses included in net loss

    (76 )     21       16       21  

Net change

    791       (4,611 )     153       (1,772 )

Cash flow hedges:

                               

Changes in unrealized gains (losses)

    (630 )     (1,400 )     (205 )     (1,402 )

Reclassification adjustments for losses included in net loss

    574       742       403       632  

Net change

    (56 )     (658 )     198       (770 )

Other comprehensive income (loss) before tax

    735       (5,269 )     351       (2,542 )

Income tax expense (benefit) related to components of other comprehensive income (loss)

    69       (1,116 )     24       (455 )

Other comprehensive income (loss), net of taxes

    666       (4,153 )     327       (2,087 )

Comprehensive loss

  $ (10,024 )   $ (6,972 )   $ (5,491 )   $ (3,210 )

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)

 

U.S. dollars in thousands, except share data

 


 

   

Common stock

                                         

Six months ended June 30, 2023

 

Number of shares outstanding

   

Amount

    Additional
paid-in
capital
   

Treasury stock

    Accumulated other comprehensive income (loss)     Retained
earnings
    Total
stockholders
equity
 

Balance as of January 1, 2023

    23,215,439     $ 23     $ 242,841     $ (9,904 )   $ (6,249 )   $ 32,160     $ 258,871  

Net loss

                                  (10,690 )     (10,690 )

Other comprehensive income

                            666             666  

Equity-based compensation

                8,064                         8,064  

Issuance of treasury stock upon exercise of stock-based awards

    323,665       1       (6,655 )     8,442             (115 )     1,673  

Balance as of June 30, 2023

    23,539,104     $ 24     $ 244,250     $ (1,462 )   $ (5,583 )   $ 21,355     $ 258,584  

 

   

Common stock

                                         

Three months ended June 30, 2023

 

Number of shares outstanding

   

Amount

    Additional
paid-in
capital
   

Treasury stock

    Accumulated other comprehensive income (loss)     Retained
earnings
    Total
stockholders
equity
 

Balance as of April 1, 2023

    23,416,026     $ 23     $ 243,141     $ (4,672 )   $ (5,910 )   $ 27,288     $ 259,870  

Net loss

                                  (5,818 )     (5,818 )

Other comprehensive income

                            327             327  

Equity-based compensation

                4,205                         4,205  

Issuance of treasury stock upon exercise of stock-based awards

    123,078       1       (3,096 )     3,210             (115 )      

Balance as of June 30, 2023

    23,539,104     $ 24     $ 244,250     $ (1,462 )   $ (5,583 )   $ 21,355     $ 258,584  

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)

 

U.S. dollars in thousands, except share data

 


 

   

Common stock

                                         

Six months ended June 30, 2022

 

Number of shares outstanding

   

Amount

    Additional
paid-in
capital
   

Treasury stock

    Accumulated other comprehensive income (loss)     Retained
earnings
    Total
stockholders
equity
 

Balance as of January 1, 2022

    22,984,552     $ 23     $ 235,386     $ (13,790 )   $ (372 )   $ 55,485     $ 276,732  

Net loss

                                  (2,819 )     (2,819 )

Other comprehensive loss

                            (4,153 )           (4,153 )

Equity-based compensation

                6,692                         6,692  

Purchase of treasury stock

    (136,091 )                 (4,457 )                 (4,457 )

Issuance of treasury stock upon exercise of stock-based awards

    289,296             (4,699 )     6,556             (137 )     1,720  

Balance as of June 30, 2022

    23,137,757     $ 23     $ 237,379     $ (11,691 )   $ (4,525 )   $ 52,529     $ 273,715  

 

   

Common stock

                                         

Three months ended June 30, 2022

 

Number of shares outstanding

   

Amount

    Additional
paid-in
capital
   

Treasury stock

    Accumulated other comprehensive income (loss)     Retained
earnings
    Total
stockholders
equity
 

Balance as of April 1, 2022

    23,204,274     $ 23     $ 235,563     $ (8,828 )   $ (2,438 )   $ 53,759     $ 278,079  

Net loss

                                  (1,123 )     (1,123 )

Other comprehensive loss

                            (2,087 )           (2,087 )

Equity-based compensation

                3,303                         3,303  

Purchase of treasury stock

    (136,091 )                 (4,457 )                 (4,457 )

Issuance of treasury stock upon exercise of stock-based awards

    69,574             (1,487 )     1,594             (107 )      

Balance as of June 30, 2022

    23,137,757     $ 23     $ 237,379     $ (11,691 )   $ (4,525 )   $ 52,529     $ 273,715  

 

The accompanying notes are an integral part of the consolidated financial statements

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

U.S. dollars in thousands

 


 

   

Six months ended
June 30,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net loss

  $ (10,690 )   $ (2,819 )

Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:

               

Depreciation

    1,462       1,594  

Amortization of intangible assets

    1,379       2,335  

Equity-based compensation

    8,064       6,692  

Realized loss (gain) on sale of available-for-sale marketable securities

    (76 )     21  

Amortization of premiums on available-for-sale marketable securities

    40       232  

Unrealized foreign exchange loss (gain)

    (352 )     148  

Remeasurement of marketable equity securities

    236       1,816  

Changes in operating assets and liabilities:

               

Trade receivables

    (657 )     (516 )

Prepaid expenses and other assets

    (1,965 )     (1,124 )

Operating lease right-of-use assets

    447       1,060  

Accrued interest on bank deposits

    (114 )     124  

Deferred tax, net

    (406 )     (3,663 )

Trade payables

    (898 )     460  

Deferred revenues

    620       (4,115 )

Accrued expenses and other payables

    (1,177 )     747  

Accrued payroll and related benefits

    (5,545 )     (490 )

Operating lease liability

    (464 )     (1,062 )

Accrued severance pay, net

    233       271  

Net cash provided by (used in) operating activities

    (9,863 )     1,711  
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (1,231 )     (2,103 )

Acquisition of business

    (3,600 )      

Investment in bank deposits

          (12,000 )

Proceeds from bank deposits

    4,000       19,385  

Investment in available-for-sale marketable securities

    (2,455 )     (27,260 )

Proceeds from maturity of available-for-sale marketable securities

    7,000       6,796  

Proceeds from sale of available-for-sale marketable securities

    10,659       2,926  

Net cash provided by (used in) investing activities

    14,373       (12,256 )
                 

Cash flows from financing activities:

               

Purchase of treasury stock

          (4,457 )

Proceeds from exercise of stock-based awards

    1,673       1,720  

Net cash provided by (used in) financing activities

    1,673       (2,737 )

Effect of exchange rate changes on cash and cash equivalents

    43       (582 )

Increase (decrease) in cash and cash equivalents

    6,226       (13,864 )

Cash and cash equivalents at the beginning of the period

    21,285       33,153  

Cash and cash equivalents at the end of the period

  $ 27,511     $ 19,289  
                 

Supplemental information of cash-flow activities:

               

Cash paid during the period for:

               

Income and withholding taxes

  $ 3,871     $ 4,977  

Non-cash transactions:

               

Property and equipment purchases incurred but unpaid at period end

  $     $ 336  

Right-of-use assets obtained in the exchange for operating lease liabilities

  $ 1,028     $ 444  

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(in thousands, except share data)

 

 

NOTE 1:

BUSINESS

 

The financial information in this quarterly report includes the results of CEVA, Inc. and its subsidiaries (the “Company” or “CEVA”).

 

CEVA licenses a family of wireless connectivity and smart sensing technologies and is a provider of chip design services. The Company’s offerings include Digital Signal Processors (“DSPs”), AI processors, short and long range connectivity solutions, 5G wireless platforms and complementary software for sensor fusion, spatial audio, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling technologies for a smarter, more connected world. These technologies are offered in combination with Non-Recurring Engineering (“NRE”) services from CEVA’s Intrinsix Corp. (“Intrinsix”) business, helping customers address their most complex and time-critical integrated circuit design projects. CEVA’s DSP and AI neural processing unit (“NPU”) platforms address the technology requirements of: 5G baseband processing for mobile, broadband, cellular IoT and Radio Access Network (“RAN”); generative AI workloads associated with computer vision for any camera, 4D and LIDAR-enabled device; audio/voice/sound; and ultra-low-power always-on/sensing applications for wearables, hearables and multiple IoT markets. For motion sensors and sensor fusion, CEVA’s Hillcrest Labs sensor processing technologies provide a broad range of software and Inertial Measurement Unit (“IMU”) solutions for markets including hearables, wearables, AR/VR, PC, robotics, remote controls and IoT. For wireless IoT, the Rivierawaves platforms for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6/6E (802.11n/ac/ax), Ultra-WideBand (“UWB”) are the most broadly licensed connectivity platforms in the industry.

 

CEVA’s Intrinsix business also expands its market reach to the aerospace and defense markets and allows it to offer custom System on Chip (“SoC”) solutions that combine CEVA’s standardized, off-the-shelf IP together with Intrinsix’s NRE design capabilities and IP in RF, mixed-signal, security, high complexity digital design, chiplets and more.

 

CEVA’s technologies are licensed to leading semiconductor and Original Equipment Manufacturer (“OEM”) companies. These companies design, manufacture, market and sell Application-Specific Integrated Circuits (“ASICs”) and Application-Specific Standard Products (“ASSPs”) based on CEVA’s technology to mobile, consumer, automotive, robotics, industrial, aerospace & defense and IoT companies for incorporation into a wide variety of end products.

 

 

 

NOTE 2:

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The interim condensed consolidated financial statements have been prepared according to U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

 

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2023, have been applied consistently in these unaudited interim condensed consolidated financial statements.

 

Accounting Standards Recently Issued, Not Yet Adopted by the Company

 

In June 2022, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted. The adoption of this standard is not expected to result in a significant impact on the Company’s interim condensed consolidated financial statements.

 

11

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

(in thousands, except share data)

 

Use of Estimates

 

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

 

NOTE 3:

ACQUISITION

 

In May 2023, the Company entered into an agreement to acquire the VisiSonics 3D spatial audio business (“VisiSonics”). Under the terms of the agreement, the Company agreed to pay an aggregate of $3,600 at closing, and each of VisiSonics’ two founders will be entitled to an additional payment of $100 payable in equal monthly installments over the 12-month period following the closing in connection with their provision of consulting services. The main strategic driver for the acquisition is that VisiSonics’ spatial audio R&D team and software, which has close ties to the Company’s sensor fusion R&D development center, extend the Company’s application software portfolio for embedded systems, bolstering the Company’s strong market position in hearables where spatial audio is quickly becoming a must-have feature.

 

In addition, the Company incurred acquisition-related expenses associated with the VisiSonics transaction in a total amount of $95, which were included in general and administrative expenses for the three and six months ended June 30, 2023. Acquisition-related costs included legal and accounting fees. 

 

The results of VisiSonics's operations have been included in the interim condensed consolidated financial statements since May 5, 2023. Pro forma results of operations related to this acquisition have not been prepared because they are not material to the Company's consolidated statement of income.

 

The acquisition of the VisiSonics business has been accounted in accordance with FASB Accounting Standards Codification (“ASC”) No. 805, “Business Combinations”. Under the acquisition method of accounting, the total purchase price is allocated to the intangible assets based on their fair values on the closing date. The excess of the purchase price over the identifiable intangible assets was recorded as goodwill. 

 

The purchase price allocations have been prepared on a preliminary basis based on information that was available to the Company at the time the condensed consolidated financial statements were prepared, and revisions to the preliminary purchase price allocations may result as additional information becomes available.

 

Goodwill generated from this business combination is attributed to synergies between the Company's and VisiSonics's respective products and services.

 

The preliminary purchase price allocation for the acquisition has been determined as follows:

 

Intangible assets:

       

Technologies

  $ 1,174  

Customer relationships

    432  

Goodwill

    1,994  

Total assets

  $ 3,600  

 

 

 

 

NOTE 4:

REVENUE RECOGNITION

 

Under ASC No. 606, “Revenue from Contracts with Customers” (“ASC 606”), an entity recognizes revenue when or as it satisfies a performance obligation by transferring intellectual property (“IP”) licenses or services to the customer, either at a point in time or over time. The Company recognizes most of its revenues at a point in time upon delivery when the customer accepts control of the IP. The Company recognizes revenue over time on NRE services or on significant license customization contracts that are in the scope of ASC 606 by using cost inputs to measure progress toward completion of its performance obligations.

 

Revenues that are derived from the sale of a licensee’s products that incorporate the Company’s IP are classified as royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating the Company’s IP occurs. Royalties are calculated either as a percentage of the revenues received by the Company’s licensees on sales of products incorporating the Company’s IP or on a per unit basis, as specified in the agreements with the licensees. When the Company does not receive actual sales data from the customer prior to the finalization of its financial statements, royalty revenues are recognized based on the Company’s estimation of the customer’s sales during the quarter.

 

12

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenues do not include amounts of royalties or unexercised contract renewals:

 

  

Remainder of 2023

  

2024

  

2025

 

Licensing, NRE and related revenues

 $8,160  $2,194  $676 

 

Disaggregation of revenue:

 

The following table provides information about disaggregated revenue by primary geographical market, major product line and timing of revenue recognition:

 

  

Six months ended June 30, 2023 (unaudited)

  

Three months ended June 30, 2023 (unaudited)

 
  

Licensing, NRE and related revenues

  

Royalties

  

Total

  

Licensing, NRE and related revenues

  

Royalties

  

Total

 

Primary geographical markets

                        

United States

 $5,700  $3,061  $8,761  $2,909  $1,411  $4,320 

Europe and Middle East

  4,643   1,312   5,955   2,309   453   2,762 

Asia Pacific

  26,677   13,012   39,689   11,556   7,507   19,063 

Other

  502      502   27      27 

Total

 $37,522  $17,385  $54,907  $16,801  $9,371  $26,172 
                         

Major product/service lines

                        

Connectivity products (baseband for handset and other devices, Bluetooth, Wi-Fi, NB-IoT and SATA/SAS)

 $29,739  $12,445  $42,184  $13,207  $6,780  $19,987 

Smart sensing products (AI, sensor fusion, audio/sound and imaging and vision)

  7,783   4,940   12,723   3,594   2,591   6,185 

Total

 $37,522  $17,385  $54,907  $16,801  $9,371  $26,172 
                         

Timing of revenue recognition

                        

Products transferred at a point in time

 $25,524  $17,385  $42,909  $10,903  $9,371  $20,274 

Products and services transferred over time

  11,998      11,998   5,898      5,898 

Total

 $37,522  $17,385  $54,907  $16,801  $9,371  $26,172 

 

  

Six months ended June 30, 2022 (unaudited)

  

Three months ended June 30, 2022 (unaudited)

 
  

Licensing, NRE and related revenues

  

Royalties

  

Total

  

Licensing, NRE and related revenues

  

Royalties

  

Total

 

Primary geographical markets

                        

United States

 $9,637  $4,100  $13,737  $5,162  $1,829  $6,991 

Europe and Middle East

  2,534   1,340   3,874   2,097   675   2,772 

Asia Pacific

  32,345   17,630   49,975   14,864   8,568   23,432 

Total

 $44,516  $23,070  $67,586  $22,123  $11,072  $33,195 
                         

Major product/service lines

                        

Connectivity products (baseband for handset and other devices, Bluetooth, Wi-Fi, NB-IoT and SATA/SAS)

 $32,810  $17,262  $50,072  $15,995  $8,200  $24,195 

Smart sensing products (AI, sensor fusion, audio/sound and imaging and vision)

  11,706   5,808   17,514   6,128   2,872   9,000 

Total

 $44,516  $23,070  $67,586  $22,123  $11,072  $33,195 
                         

Timing of revenue recognition

                        

Products transferred at a point in time

 $30,776  $23,070  $53,846  $14,844  $11,072  $25,916 

Products and services transferred over time

  13,740      13,740   7,279      7,279 

Total

 $44,516  $23,070  $67,586  $22,123  $11,072  $33,195 

 

13

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

Contract balances:

 

The following table provides information about trade receivables, unbilled receivables and contract liabilities from contracts with customers:

 

  

June 30, 2023

(unaudited)

  

December 31,

2022

 
         

Trade receivables

 $13,502  $12,297 

Unbilled receivables (associated with licensing, NRE and related revenue)

  8,570   8,695 

Unbilled receivables (associated with royalties)

  9,800   10,258 

Deferred revenues (short-term contract liabilities)

  3,788   3,168 

 

The Company receives payments from customers based upon contractual payment schedules; trade receivables are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables associated with licensing, NRE and other include amounts related to the Company’s contractual right to consideration for completed performance objectives not yet invoiced. Unbilled receivables associated with royalties are recorded as the Company recognizes revenues from royalties earned during the quarter, but not yet invoiced, either by actual sales data received from customers, or, when applicable, by the Company’s estimation. Contract liabilities (deferred revenue) include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

 

During the three and six months ended June 30, 2023, the Company recognized $835 and $2,396, respectively, that was included in deferred revenues (short-term contract liability) balance at January 1, 2023. 

 

 

 

NOTE 5:

LEASES

 

The Company leases substantially all of its office space and vehicles under operating leases. The Company's leases have original lease periods expiring between 2023 and 2034. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

 

14

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

The following is a summary of weighted average remaining lease terms and discount rates for all of the Company’s operating leases:

 

  

June 30, 2023

(Unaudited)

 

Weighted average remaining lease term (years)

  4.65 

Weighted average discount rates

  3.50

%

 

Total operating lease cost and cash payments for operating leases were as follows:

 

  

Six months ended
June 30,

  

Three months ended
June 30,

 
  

2023

  

2022

  

2023

  

2022

 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
                 

Operating lease cost

 $1,642  $1,643  $820  $843 

Cash payments for operating leases

  1,647   1,616   828   786 

 

 

Maturities of lease liabilities are as follows:

 

The remainder of 2023

 $1,573 

2024

  2,739 

2025

  2,129 

2026

  1,036 

2027

  963 

2028 and thereafter

  1,368 

Total undiscounted cash flows

  9,808 

Less imputed interest

  674 

Present value of lease liabilities

 $9,134 

 

 

 

 

NOTE 6:

MARKETABLE SECURITIES

 

The following is a summary of available-for-sale marketable securities:

 

  

June 30, 2023 (Unaudited)

 
  

Amortized
cost

  

Gross
unrealized
gains

  

Gross
unrealized
losses

  

Fair
value

 

Available-for-sale - matures within one year:

                

Corporate bonds

 $29,099  $  $(1,616) $27,483 
                 

Available-for-sale - matures after one year through four years:

                

Corporate bonds

  74,640   3   (4,423)  70,220 

Total

                
  $103,739  $3  $(6,039) $97,703 

 

15

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

  

December 31, 2022

 
  

Amortized
cost

  

Gross
unrealized
gains

  

Gross
unrealized
losses

  

Fair
value

 

Available-for-sale - matures within one year:

                

Corporate bonds

 $17,552  $  $(1,330) $16,222 
                 

Available-for-sale - matures after one year through five years:

                

Corporate bonds

  101,355   38   (5,535)  95,858 
                 

Total

 $118,907  $38  $(6,865) $112,080 

 

 

The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2023, and December 31, 2022, and the length of time that those investments have been in a continuous loss position:

 

  

Less than 12 months

  

12 months or greater

 
  

Fair value

  

Gross unrealized loss

  

Fair value

  

Gross unrealized loss

 

As of June 30, 2023 (unaudited)

 $18,905  $(268) $77,534  $(5,771)

As of December 31, 2022

 $58,706  $(1,885) $48,539  $(4,980)

 

 

As of June 30, 2023, the allowance for credit losses was not material.

 

The following table presents gross realized gains and losses from sale of available-for-sale marketable securities:

 

  

Six months ended
June 30,

  

Three months ended
June 30,

 
  

2023

  

2022

  

2023

  

2022

 
  (unaudited)   (unaudited)   (unaudited)  (unaudited) 
                 

Gross realized gains from sale of available-for-sale marketable securities

 $92  $  $  $ 

Gross realized losses from sale of available-for-sale marketable securities

 $(16) $(21) $(16) $(21)

 

 

 

NOTE 7:

FAIR VALUE MEASUREMENT

 

FASB ASC No. 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value. Fair value is an exit price, representing the amount that would be received for selling an asset or paid for the transfer of a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level I

Unadjusted quoted prices in active markets that are accessible on the measurement date for identical, unrestricted assets or liabilities;

Level II

Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level III

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

16

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

 

The Company measures its marketable securities, investments in marketable equity securities and foreign currency derivative contracts at fair value. The carrying amount of cash, cash equivalents, short-term bank deposits, trade receivables, other accounts receivable, trade payables and other accounts payables approximate fair value due to the short-term maturity of these instruments. Investments in marketable equity securities are classified within Level I as the securities are traded in an active market. Marketable securities and foreign currency derivative contracts are classified within Level II as the valuation inputs are based on quoted prices and market observable data of similar instruments.

 

The table below sets forth the Company’s assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

Description

 

June 30,

2023

(unaudited)

  

Level I

(unaudited)

  

Level II (unaudited)

  

Level III (unaudited)

 

Assets:

                

Marketable securities:

                

Corporate bonds

 $97,703     $97,703    

Foreign exchange contracts

  2      2