CEVA INC

Our ultra-low-power signal processing IPs are enabled by our own Digital Signal Processors (DSP) or an ARM / RISC-V CPU and are deployed in devices for smart sensing and connectivity workloads. Our smart sensing portfolio includes advanced technologies for cameras, microphones and interial measurement units (IMU). Our camera platforms incorporate DSPs and software technologies for AI, computer vision and imaging. Our microphone technologies incorporate DSPs and software technologies for noise cancellation, echo cancellation and voice recognition. Our IMU technologies include ARM-based software supporting sensor processing of accelerometers, gyroscopes, magnetometers, optical flow and time-of-flight (ToF), and sensor fusion for IMU and environmental sensor-enabled devices. Our connectivity portfolio includes LTE and 5G mobile broadband platforms for handsets and base station RAN, NB-IoT for low bit rate cellular and Bluetooth and Wi-Fi technologies for wireless IoT.

Licensing and related revenues were $11.3 million and $33.1 million for the third quarter and first nine months of 2019, respectively, representing an increase of 15% and 11%, respectively, as compared to the corresponding periods in 2018. The increase in licensing and related revenues for the third quarter and the first nine months of 2019 was due to our extensive product portfolio in smart sensing, especially with vision and related AI products, and base station, partially offset from lower Bluetooth revenues. In the third quarter of 2019, we signed fourteen deals, including comprehensive agreements with industry leaders in strategic markets such as ADAS, hearing aids and cellular IoT. We remain focused on executing licensing agreements and gaining key customer adoptions, as evident across the first three quarters of this year.

Royalty revenues were $12.2 million and $25.8 million for the third quarter and first nine months of 2019, respectively, representing an increase of 5% and a decrease of 3%, respectively, as compared to the corresponding periods in 2018. Royalty revenues accounted for 52% and 44% of our total revenues for the third quarter and first nine months of 2019, respectively, as compared to 54% and 47% for the comparable periods of 2018. The increase in royalty revenues for the third quarter of 2019 reflects good momentum in non-handset products. Sequentially, our handset baseband customers benefitted from the launch of premium smartphones and share gain in the low-cost smartphone market, although royalty revenues decreased on a year-over-year basis. Our non-handset business continues to grow with record high quarterly revenues and unit shipments of 123 million, including first-time contribution from our newly acquired Hillcrest Labs sensor fusion business. The decrease in royalty revenues for the first nine months of 2019 reflects a decrease in smartphone handset shipments, offset by higher shipments of non-handset baseband products, including first-time contribution from the Hillcrest Labs sensor fusion business. We expect a 10% sequential increase in royalties in the last quarter of the year, which if achieved, would be the highest royalty revenue quarter in the company’s history.

Our general and administrative expenses were $3.5 million and $8.4 million for the third quarter and first nine months of 2019, respectively, as compared to $2.4 million and $8.2 million for the comparable periods of 2018. The increase for the third quarter of 2019 primarily reflected higher professional services cost and a lease write-off related to the Hillcrest Labs acquisition. The increase for the first nine months of 2019 primarily reflected higher professional services cost and a lease write-off related to the Hillcrest Labs acquisition, partially offset by lower non-cash equity-based compensation expenses. Included in general and administrative expenses for the third quarter and first nine months of 2019 were non-cash equity-based compensation expenses of $728,000 and $1,957,000, as compared to $697,000 and $2,483,000 for the comparable periods of 2018. General and administrative expenses as a percentage of our total revenues were 15% and 14% for the third quarter and first nine months of 2019, as compared to 11% and 15% for comparable periods of 2018. The percentage increase for the third quarter of 2019 is due to the same reasons as set forth above for the increase in general and administrative expenses in absolute dollars. The percentage decrease for the first nine months of 2019 is due to higher total revenues for the first nine months of 2019, as compared to the comparable period of 2018, offset by the same reasons as set forth above for the increase in general and administrative expenses in absolute dollars.

Interest income and gains and losses from marketable securities, net, were $0.88 million and $2.78 million for the third quarter and first nine months of 2019, respectively, as compared to $0.92 million and $2.73 million for the comparable periods of 2018. The decrease in interest income, and gains and losses from marketable securities, net, during the third quarter of 2019 principally reflected lower combined cash, bank deposits and marketable securities balances held (mainly as a result of the acquisition of the Hillcrest Labs business and the technology investment in Immervision during the third quarter of 2019). The increase in interest income and gains and losses from marketable securities, net, during the nine months of 2019 principally reflected higher yields, offset by lower combined cash, bank deposits and marketable securities balances held (mainly as a result of the acquisition of the Hillcrest Labs business and the technology investment in Immervision during the third quarter of 2019).