CEVA Inc. 2026 Q2 Earnings Call

Good morning, everyone, and welcome to CEVA's second quarter 2026 earnings conference call. Joining me today are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer. Before handing the call over to Amir, I'd like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such statements. We will also discuss certain non-GAAP financial measures, which we believe provide investors with additional insight into our core operating performance. Reconciliations between our GAAP and non-GAAP results are included in the earnings release issued this morning and available on the investor relations section of our website. With that, I'll turn the call over to Amir.

Amir? Thank you, Richard, and good morning, everyone.

We delivered another strong quarter, with revenue increasing 13% year-over-year to $29 million, fueled by licensing and related revenue growing 21% to hit highest level in three years. The quarter also benefited from a sequential recovery in royalty revenue, driven by continuing momentum across wireless connectivity, ramping automotive AI programs, and market share gains in smartphone. During the quarter, we signed 10 licensing agreements, including two with first-time customers and two directly with OEMs. More important than the number of agreements is the quality of those agreements. Increasingly, customers are adopting broader platforms and deeper collaborations that strengthens both our near-term licensing business and our long-term royalty opportunity. I would like to focus today on two themes that we believe highlight an important shift in the semiconductor industry and explain why CEVA and our technologies are increasingly well-positioned for long-term growth.

The first is the continuing migration of intelligence from the cloud to the smart edge. This is a trend we have discussed for several years and one that is increasingly driving demand for our higher performance, connectivity, sensing, and AI technologies. During the quarter, we announced that we believe is one of the most strategically significant AI licensing agreements in CEVA's history. A leading global AI and computing platform company selected our NeuPro-M NPU IP for its next generation custom AI silicon. This agreement is significant for several reasons. First, it represents a new category of AI customers for CEVA. Historically, our AI licensing activity has primarily been with semiconductor companies and device OEMs.

This customer develops both the hardware platform and the operating system, allowing us to collaborate at a much deeper level by optimizing not only the NPU hardware but also the AI software stack for its models, applications, and workloads. The expertise we gain through this engagement extends well beyond a single customer program. Co-optimizing AI hardware and software at the platform level will strengthen both our hardware and software roadmaps and further enhance our AI offering for future customers. Broadly, we believe this agreement reflects an important industry trend, where companies with some of the world's large engineering organizations are increasingly choosing to leverage proven AI IP rather than developing every component internally. For these companies, the question is no longer whether they have the engineering capability to build an NPU, but whether doing so represents the best use of their engineering resources.

By licensing production-proven IP, they can focus their investments on the hardware, software, and AI experiences that differentiate their platforms while reducing development risk and accelerating time to market. The second trend we are seeing is customers increasingly adopting broader platform solutions rather than individual IP blocks. Two agreements from the quarter illustrate this well. A high-volume U.S. semiconductor company chose to adopt a complete chip built on our Wi-Fi 6 and Bluetooth Low Energy IP, originally developed in partnership with another CEVA customer, rather than licensing the underlying IP blocks individually. The decision reflects the same preference for production-proven complete solutions over developing internally or licensing component IP. Separately, another U.S. customer expanded a relationship that began with a single baseband component by adopting our complete baseband processing subsystem.

As semiconductor development becomes increasingly complex, customers are recognizing that leveraging proven subsystem IP can significantly reduce engineering effort and execution risk, all while accelerating time to market, enabling them to concentrate their internal resources on the technologies that most differentiate their products. These are different customers and different technologies, but they demonstrate the same underlying trends. Companies are increasingly choosing production-proven hardware, software, and system expertise delivered as a complete platform, rather than assembling individual IP blocks themselves. For CEVA, this expands both the scope and value of our engagements. Broader platform adoption increases our content per design, deepens our integration into customer products, and creates larger, longer-term customer relationships, and increases the royalty opportunity associated with each customer platform as those products enter production. These successful outcomes also validate the strategy we have been executing over the past several years.

We have invested in expanding our diverse portfolio beyond individual IP blocks to more complex hardware and software platforms across connectivity, sensing, and AI. As customers look to accelerate development while reducing execution risk, we believe this positions CEVA to capture a greater share of silicon content in future designs. Beyond these strategic engagements, activity remains broad-based across our business. In addition to the AI and platform wins I just discussed, we signed multiple follow-on agreements with existing customers alongside our new customer engagements, demonstrating our ability to both expand long-term relationships and consistently win new business. At Core Connectivity, we secured customer engagement spanning the United States, Europe, China, and the broader Asia-Pacific region, reinforcing the global demand for our technology.

We also expanded our sensing portfolio with the launch of our Microsoft-certified RealSpace Elevate embedded application software, extending our spatial larger technology into the PC gaming market for the first time. Taken together, these achievements reinforce the strength of our connect, sense, and infer offering to enable Physical AI use cases. While AI is creating exciting new opportunities for CEVA, connectivity remains the foundation of Physical AI and continues to be the entry point for many of our customers' relationships. Increasingly, those relationships expand over time as customers adopt additional technologies across our portfolio. Now, turning to royalties. We are beginning to see the benefit of the broader customer engagements we have been building over the past several years translate into an increasingly diversified royalty business.

Royalty revenues increased both sequentially and year-over-year, supported by continuous trends across our wireless connectivity portfolio, a growing contribution from automotive AI deployment, and share gains in smartphones. Wireless connectivity remained particularly strong, with healthy year-over-year growth in both Wi-Fi and Bluetooth shipments, while cellular IoT shipments reached another quarterly record. In automotive, customer programs continue to ramp, reflecting increasing AI content in next-generation vehicles. Overall, the quarter demonstrates the continued evolution of CEVA business and the continued market leadership of our IP. We are expanding the breadth of our licensing engagements, increasing the value of every customer relationship through broader platform adoption, and building a more diversified royalty engine. Together, these trends reinforce our confidence in both our near-term outlook and our long-term growth opportunity. With that, I'll turn the call over to Yaniv to review our financial results.

Thank you, Amir. Good morning, everyone. I'll now review our financial results for the second quarter. Revenue for the second quarter increased 13% year-over-year and 7% sequentially to $29 million, reflecting another exceptionally strong licensing quarter and continued improvement in our royalty business. Our trailing 12-month licensing and related revenue increased 13% to around $70 million. The revenue breakdown is as follows. Licensing and related revenue increased 21% year-over-year to $18.2 million, reflecting 63% of our total revenues and our strongest licensing quarters in three years. Importantly, the strength of the quarter reflects the broader platform engagements Amir described earlier, which not only increase licensing and related revenues today, but also expand the future royalty opportunity associated with those customer programs. Royalty revenue was $10.8 million, reflecting 37% of our total revenues, compared with $10.7 million for the prior year.

Period and up 17% sequentially, reflecting continued strength across wireless connectivity and automotive AI and share gains in smartphones. Gross margin was 87% on GAAP basis and 88% on non-GAAP basis, in line with our guidance. GAAP operating expenses were $27.5 million below the low end of our guidance range. Non-GAAP operating expenses, excluding equity-based compensation expenses, amortization of acquired intangibles, and acquisition-related costs, were $22.3 million, at the low end of our guidance. GAAP operating loss improved to $2.1 million compared to $4.5 million in the second quarter of last year. Non-GAAP operating income increased to $3.1 million compared with $0.8 million in the prior year. While non-GAAP operating margins expanded to 11%, up from 3% a year ago. Both measures also improved significantly on a sequential basis, demonstrating continued operating leverage.

Net financial income was $1 million compared to $2.1 million in the second quarter of 2025 and below our guidance of $1.7 million, primarily due to foreign exchange effects related to our Israeli shekel-dominated lease obligations. Income tax expense was approximately $1.8 million, slightly above the guidance, reflecting the geographic mix of licensing and royalty revenues recognized during the quarter. GAAP net loss was $2.9 million or $0.10 diluted share, compared with GAAP net loss of $3.7 million or $0.15 per share in the second quarter of 2025. Non-GAAP net income increased 28% year-over-year to $2.3 million, while non-GAAP diluted earnings per share increased to $0.08 compared to $0.07 in the prior year period. On a sequential basis, both non-GAAP and net income and diluted earnings per share doubled.