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Q3 2010 Earnings Call Transcript

October 26, 2010 5:00 pm ET


Richard Kingston – Director, Marketing & IR

Gideon Wertheizer – CEO

Yaniv Arieli – CFO


Anil Doradla – William Blair

Gary Mobley – Benchmark

Vijay Rakesh – Sterne Agee

Matt Robison – Wunderlich Securities

Daniel Meron – RBC Capital Markets

Doug Whitman – Whitman Capital



Good morning. My name is Dorothy, and I will be your conference operator today. At this time, I would like to welcome everyone to the CEVA Q3 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 would now like to turn the conference over to Richard Kingston, Director of Marketing and Investor Relations. Mr. Kingston, you may begin.

Richard Kingston

Thank you and good morning, everyone. Welcome to CEVA’s third 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 from the quarter, followed by Yaniv, who will cover the financial results for the third quarter and provide financial guidance for the fourth quarter of 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 fourth quarter of fiscal 2010; general outlook for remainder of 2010 and 2011; optimism about our customer’s product pipelines and market penetrations and such impact on our future revenues, including our customers in the Chinese local OEM market, the positive impact of two existing customers fully utilizing their prepaid arrangements in the fourth quarter; optimism about the growth in the handset markets including LTE and 2-G spaces, and networking and machine-to-machine products, and our ability to generate revenue from these new products and technologies, and the positive impact of Intel’s acquisition of the wireless division of Infineon, and Broadcom acquisition of Beceem Communications.

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; the ability of products incorporating our technologies to achieve market acceptance; the effect of intense industry competition and consolidation; the possibility that markets for our technologies may not develop as expected, or that products incorporating our technology do not achieve market acceptance; our ability to timely and successfully develop and introduce new technologies; 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 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 2010. Our revenue for the quarter was $10.7 million, representing 11% increase compared to the third quarter of 2009.

Royalty revenue for the third quarter of 2010 was $5.2 million, representing a noteworthy 42% increase over the third quarter of last year, and 11% sequential increase after excluding approximately $444,000 associated with the royalty catch up amount recorded in the second quarter of 2010.

Our third-quarter operating margin reached 21% and 26% on a US GAAP and non-GAAP basis respectively, which represents all time record highs. Our non-GAAP EPS increased 17% on a year-over-year basis for the third quarter, and reached a record high of $0.14.

During the third quarter we concluded 6 new license agreements, five of the agreements were for our CEVA DSP cores, platforms and software, and one agreement was for our Bluetooth technology. Geographically, two of the license agreements were in the US, three in Asia and one was in Europe.

Target application for the licenses concluding during the quarter are primarily 3G and 4G, based on processors [ph] for mobile handset and broadband, Android-based application processors for smart phones, tablets, ereaders, and smart meter.

The third quarter was a good quarter with two important agreements, which I will elaborate on in a few minutes. We also signed a software service agreement with a tier 1 OEM during the quarter, supplementing a core licensing agreement with the same OEM that concluded at the end of last year. This OEM made substantial progress with the in-house developed LTE product, based on our DSP, and sort out [ph] our software offering to expedite its development efforts.

On the royalty front, our growth is driven by market share expansion in the basement [ph] space, including growing contribution from Nokia. Our pipeline continued to strengthen. We are seeing considerable interest in our products, in particular next-generation wireless product for handset, networking and machine-to-machine.

Let me take a few moments to elaborate on the two key agreements that we signed in the quarter. A CEVA-XC license agreement was signed with a major semiconductor company, which is going to use its substantial assets and economies of scale to become a major supplier to the growing smart phone and tablet space. The CEVA-XC technology was selected due to its capability for software defined radio, as well as picture, thereby providing seamless and faster power for supporting the most advanced profile for wireless communication such as LTE and LTE Advanced.

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