CEVA

CEVA, Inc. (CEVA)

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CEVA, Inc. (CEVA)

Q1 2010 Earnings Call Transcript

April 29, 2010 8:30 am ET

Executives

Richard Kingston – Director of Marketing & IR

Gideon Wertheizer – CEO

Yaniv Arieli – CFO

Analysts

Daniel Meron – RBC Capital Markets

Matt Robinson – Wunderlich Securities

Anil Doradla – William Blair

Allan Mishan – Brigantine

Warren Darilek – Morgan Keegan

Presentation

Operator

Good morning. My name is Glen and I will be your conference operator today. At this time I would like to welcome everyone to the CEVA Q1 2010 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) Thank you. I will now turn the conference over to Mr. Richard Kingston, Director of Marketing and Investor Relations. Please go ahead, sir.

Richard Kingston

Thank you. Good morning everyone and welcome to CEVA’s first quarter 2010 earnings conference call. This conference call will be conducted by Gideon Wertheizer, Chief Executive Officer of CEVA; Yaniv Arieli, Chief Financial Officer of CEVA, and I, Richard Kingston, Director of Marketing and Investor Relations.

Gideon will cover the business aspects and the highlights on the quarter followed by Yaniv who will cover the financial results for the quarter and provide financial guidance for the second quarter and fiscal 2010.

I will start with the forward-looking statements. 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 second quarter and fiscal 2010, a general outlook for 2010, optimism about our licensing pipeline, royalty revenue, an increased design activities in 2010, optimism about our customers displacing It and Qualcomm, including Infineon and Broadcom, optimism about their market growth in LTE, set top boxes, digital TVs, HD video, the Chinese TD-SCDMA market, and alternative WiFi connectivity devices, and our position within them, and our customer production schedules, and our ability to generate revenues from new products and technologies.

The risks, uncertainties and assumptions include the ability of the CEVA DSP cores and other technologies to continue to be a strong growth drivers for us; our success in penetrating new markets and maintaining our market position in existing markets; the effects of the intense industry competition; the possibility that markets for our technologies may not develop as expected or that products incorporating our technologies do not achieve market successes; our ability to timely and successfully develop and introduce new technologies; our ability to continue to improve our licensing and 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 as of their respective dates.

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

Gideon Wertheizer

Thank you, Richard. Good morning to 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 first quarter of 2010. Our revenue for the first quarter was $10.6 million, a record for CEVA, and above the mid-range of our guidance.

Total revenues increased by 11% when compared to the first quarter of 2009. Royalty revenue for the first quarter of 2010 was $5 million, also a record, and representing a 32% increase over the first quarter of 2009.

During the first quarter we concluded five new license agreement. Four of the agreements were for our CEVA DSP cores, platforms, and software, and one agreement was for SATA technology. Geographically, two of the license agreement were in Europe, and three in Asia. Target application for the licenses concluded during the quarter are primarily for 2G, 3G handsets, and data cards, set-top boxes, digital TV, and SSD drives.

Our record revenue and to a larger extent our pipeline build-up during the quarter reflects a growing interest in our diverse product portfolio. This trend confirms to our market expectation following the general business improvement in our primary markets, particularly the cellular baseband market. I will elaborate on this subject later during the call.

Another indicator of the increased design activity is the 37% sequential increase in our support revenue due to higher sales of software and hardware design kits needed for design activity. Higher sequential revenue, royalty revenue followed the seasonal trend whereby first quarter royalties reflect generally higher fourth quarter shipments. However, the magnitude of the increase was lower than – is typical. This is primarily due to the higher third quarter shipments reflected in our fourth quarter royalty revenue, which was driven by unique recovery quarter with strong demand and inventory replenishment.

A noteworthy positive development associated with our royalty paying customers is the addition of two new customers in the cellular space. Although these royalties will initially be small, they are expecting to ramp up in the coming quarters. Going forward, we believe we are on track with our revenue growth plans, both in licensing and royalty. There is a noticeable progress on license agreements with existing and new customers as well as handset buildup in the licensing pipeline.

On the royalty front, we believe second quarter revenue reflecting first quarter shipments will generally follow the seasonal trend of lower shipments during the past Christmas season but could be partially offset by shipments of new model by our cellular baseband customers, displacing TI and Qualcomm as well as new royalty paying customers.

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