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Q1 2009 Earnings Call

May 05, 2009; 8:30 am ET


Gideon Wertheizer - Chief Executive Officer

Yaniv Arieli - Chief Financial Officer


Vijay Rakesh - ThinkEquity

Anil Doradla - William Blair & Company

Matthew Robison - Wedbush

Daniel Meron - RBC Capital Management

Robert Morrison - Unidentified Company



Good morning. My name is Crystal and I would be your conference operator today. At this time, I would like to welcome everyone to the CEVA first quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mr. Arieli, Chief Executive Officer. Please go ahead.

Yaniv Arieli

Thank you. I’m not yet promoted, just Chief Financial Officer. Good morning everyone and welcome to CEVA’s first quarter 2009 earnings conference call. Today’s conference call contains forward-looking statements that involve risks and uncertainties as well as assumptions that if materialize or prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statement and assumption.

Forward-looking statements include financial guidance for the second quarter of ‘09, 2009 general outlook, including handset sales for the second half of ‘09, optimism about our market share expansion, new product introductions by our customers, production schedules and our ability to generate revenues from these new products, prospects for the CEVA-XC, our ability to capitalize on the Smartphone, netbook, ultra-low-cost cell phone and 4G LTE trend and anticipated benefit of our cost containment measures.

The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be strong growth drivers for us, our success in penetrating new markets and maintaining our market position in existing markets, successive operation of adjustment in producing their anticipated benefits, the possibility that the markets for our technology may not develop as expected or that our customer’s products incorporating our technologies do not achieve market ethics as expected.

Our ability to timely and successfully develop and introduce new technologies, general market conditions and competitions and other risks relating to our business, including but not limited to those that are described from time-to-time in our SEC filings.

CEVA assumes no obligation to update any forward-looking statements or information, which speak of their representative dates. This conference will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA and myself, Yaniv Arieli, Chief Financial Officer. Gideon will start and cover the business aspects and the highlights from this last quarter, while I will cover the financial results for the first quarter of ‘09 as well as the financial guidance for the second quarter of the year.

With that said, I would now like to turn the call to Gideon.

Gideon Wertheizer

Thanks Yaniv. Good morning everyone and thank you for joining us today. I hope you had the opportunity to review our press release with the results of the first quarter of 2009. During the quarter, we reported total revenues of $9.5 million, which was 6% lower than the first quarter of 2008. Royalty revenue for the first quarter of 2009 was $3.8 million compared to $3.7 million for the first quarter of 2008.

Let me take a moment to remind you that our customers report royalties one quarter in arrears, so the first quarter royalties reflecting fourth quarter of 2008 shipment when the industry was already experiencing the severe downturn.

With that said and despite the major economic slowdown, our royalty levels increased slightly on a year-over-year basis. This is largely due to our market share expansion in the handset and the growing use of our technologies in the mobile multimedia aspect.

During the first quarter, we conclude that nine new license agreements, eight of the agreements were for our CEVA DSP cores platforms and software and one agreement works for our flash technology. Geographically, four of the license agreements are in Europe, three in Asia and two in the U.S. Target application for the licenses concluded during the quarter are mainly 3G and 4G handset, data card, smartphone, mobile multimedia and storage equipment.

The first quarter of 2009 was a solid quarter for CEVA. Our revenue came close to the high end of our guidance. On the profitability front, we demonstrated record high achievement in our operating margin for both GAAP and non-GAAP measures as well as record high achievement net income and EPS on a non-GAAP basis.

Our non-GAAP operating margin for the first quarter doubled to 20% versus 10% for the first quarter of 2008. Non-GAAP operating margins net income and EPS for the first quarter of 2009 exclude equity-based compensation expenses of $0.8 million. This is very encouraging in light of the global slowdown and came as a result of continued and consistent effort to focus on our key markets and lucrative business opportunities.

As I mentioned earlier, we concluded nine new license agreements and now towards the achievement in light of the core substance that company have recently taken. On the agreement executed, I’d like to provide few important highlights.

First, two of the agreement of the major silicon supplier in the handset market that license of CEVA-X and TeakLite-III DSP cores. The silicon supplier plan to design the CEVA-X and TeakLite-III into range of products from low-end single chip baseband to high-end 3.5G and 3.9G smartphone handset, another agreement with a customer that is a pioneer of the WiMax and 3G multimode technology.

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