CEVA

CEVA, Inc. (CEVA)

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CEVA Inc. (CEVA)

Q3 2009 Earnings Call

October 28, 2009 8:30 am ET

Executives

Gideon Wertheizer – Chief Executive Officer

Yaniv Arieli – Chief Financial Officer

Analysts

[Brian] – William Blair & Company

Daniel Meron – RBC Capital Markets

Matt Robison – Wedbush Morgan Securities

Allan Mishan – Brigantine Advisors

Steven Glass – STG Capital Management

[Robert Morrison] – Private Investor

Presentation

Operator

Good morning. At this time I would like to welcome everyone to the CEVA Q3 2009 earnings conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Yaniv Arieli, Chief Financial Officer. Please go ahead, sir.

Yaniv Arieli

Good morning everyone and welcome to CEVA's third quarter 2009 earnings conference call. Today's conference call 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.

Forward-looking statements include financial guidance for the fourth quarter and fiscal 2009, general outlook of the market and economy and our licensing pipeline, market statistics gathered from analysts, projected increase in our market share, design wins with our customers, new product introduction by our customers, their production schedules and our ability to generate revenues from new products, our ability to capitalize on trends for greater usage of ultra low cost phones, data cards, e-readers, netbooks, MIDs and machine-to-machine products.

The risk and uncertainties and assumptions include the ability of CEVA DSP cores and other technologies to continue to be a strong growth driver for us, our success in penetrating new markets and maintaining our market position in existing markets, the effect of the intense competition in our industry, the effect of the challenging period of growth experienced by the industries in which we license our technologies to, the possibility that the markets for our technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance.

Our ability to timely and successfully develop and introduce new technologies, our ability to continue and improve our royalty revenue in future periods and general market conditions 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 date.

This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA and I, Yaniv Arieli, Chief Financial Officer of the company. Gideon will cover the business aspects and highlights for the quarter while I will cover the financial results for the third quarter of 2009, as well as the financial guidance for the fourth quarter and fiscal '09.

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

Gideon Wertheizer

Good morning, everyone, and thank you for joining us today. I hope you had the opportunity to review our press release with the financial results for the third quarter of 2009. During the quarter we achieved revenues of $9.7 million, a 6% sequential increase over the second quarter of 2009 and 5% decrease compared to the third quarter of 2008. This revenue figure exceeded our expectation and was above our previously stated guidance.

Royalty revenue for the third quarter of 2009 was $3.7 million, representing a 19% sequential increase over the second quarter of 2009, excluding approximately $0.9 million of catch-up royalties and 12% higher than the $3.3 million resulted for the third quarter of 2008.

During the third quarter we concluded six new license agreements, five with a German work for CEVA DSP core platform in [Foster] and one agreement was for Bluetooth technology. Geographically three of the license agreements were in Europe and three in Asia.

Target applications for the licenses concluded during the quarter are primarily 2G internal [inaudible] handset, small form data cards, mobile TVs, portable and home multimedia and Passive Optical Networks.

Our third quarter results indicate an improving pattern of licensing and royalties from our customers. We believe our licensing business has started to recover and customers are more receptive to upgrade for the new generation of our best-of-breed DSP cores and other technologies, rather to reusing existing platforms. Visibility is starting to improve as well and our licensing pipeline has strengthened, specifically regarding advanced technology such as LTE terminals, data card synthesis, [high to finish] and multimedia, solid state drive and Voice-over-IP.

Turning to royalties, our results reflect a return to seasonality as well as continued market share gains for CEVA this quarter, particularly in the business market. The royalty contribution from the consumer front has shown some improvement, but still constrained by overall weakness of the economy.

We continue to show robust and systematic progress with our profitability and our debt-free balance sheet is stronger than ever. Both our GAAP and non-GAAP operating margins reached record high of 17% and 24% respectively.

Our gross margin for the quarter also reached a record high of 91%. Our non-GAAP net income and EPA also reached all-time highs of $2.4 million and $0.12 respectively.

Now a few observations about the cellular handset market, the global cellular handset shipments for the second quarter of 2009 [derives] supply were $265 million. Our third quarter royalties which represent second quarter shipments included approximately 61 million handset units shipped. These strong results driven by higher handset sales of local form in China and India, their market, improved for 3G Smartphone for the rest of the world.

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