Earnings Transcript for CEVA - Q4 Fiscal Year 2024

Operator: Good day, and welcome to the CEVA Fourth Quarter and Year End 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President-Market Intelligence and Investor and Public Relations. Please go ahead sir.

Richard Kingston: Thank you, Rocco. Good morning, everyone, and welcome to CEVA’s fourth quarter and full year 2024 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would 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 the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include statements regarding our strategy and growth opportunities, market positioning, trends and dynamics, including the impacts of the AI super-cycle, recent advances related to LLM, large language model efficiency and the shift from AI inference processing in the cloud to the edge, expectations regarding demand for and benefits of our technologies and revenues from long-term strategic engagements with industry leaders, our sales pipeline and backlog, and our financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. In addition, following the divestment of the Intrinsix business, financial results from Intrinsix were transitioned to a discontinued operation beginning in the third quarter of 2023, and all prior period financial results have been recast accordingly. We will also be discussing certain non-GAAP financial measures which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our investors relations website at investors.ceva-ip.com. With that said, I’d like to turn the call over now to Amir who will review our business performance for the quarter and the year and provide some insight into our ongoing business and – for 2025. Amir?

Amir Panush: Thank you, Richard. Welcome everyone and thank you for joining us today. 2024 was a transformative year for CEVA, marking a year of exceptional execution with double-digit revenue growth, increased profitability and expanded market leadership for the smart edge. Our growth strategy, which we shared during our Investor Day at the end of 2023, positioned us to exceed our expectations for 2024 while keeping us strategically focused on our long-term goals to maximize shareholder value. Our core strategy of partnering closely with our customers to solve their most critical technology challenges through a comprehensive, best-in-class portfolio of IP platforms continues to drive our growth. By enabling smart edge devices to connect, sense and infer data at the edge, we are delivering impactful solutions that drive success for both our partners and our business. In 2024, we have strengthened our leadership and influence around our key technology pillars, reinforcing our dominant position in wireless connectivity while expanding our sense and inference product offerings and global customer base. Our large, highly diversified customer base spans across multiple industries and end markets, creating multiple licensing growth engines and strong royalty tailwinds that are further enhanced by the expansion of AI across industries and everyday life. Before reviewing the year and our key achievements, I’ll first provide an overview of our fourth quarter performance. For the fourth quarter, I am pleased to report another strong quarter, with both licensing and royalties combining to deliver 21% year-over-year revenue growth and exceeding market expectations. As we highlighted in recent earnings calls, our business momentum is fueled by the AI super-cycle, with significant investment shifting towards enabling AI inference processing at the edge. This trend perfectly intersects with our industry-leading portfolio of IPs which enable any edge device to connect wirelessly, sense its environment via vision, sound or motion and perform real-time, on-device inference, enabling faster and more efficient decision-making at the edge. We believe that recent advancements related to large language model efficiency – with significantly lower training and inference costs and reduced memory requirements, will make AI more accessible, efficient, and affordable, particularly at the edge. As LLMs become smaller and less resource-intensive, the shift from centralized cloud processing to on-device AI will accelerate, unlocking new opportunities for real-time, edge-based intelligence. In the quarter we signed several key strategic licensing deals, the first deal to note is with a top-tier global MCU company, which has signed a long-term architecture licensing agreement for our Wi-Fi platform. This partnership will enable our customer to offer end-to-end connectivity solutions across a wide range of IoT and industrial IoT applications. As the market for Wi-Fi connectivity continues to grow, so does the complexity of the standards and the large number of products with different connectivity flavors that MCU companies need to integrate Wi-Fi into. By standardizing on Ceva-Wave Wi-Fi platform architecture, this customer will streamline their Wi-Fi efforts and focus on their core key differentiators while benefitting from our IP to deliver best-in-class connectivity solutions across their MCU portfolio, targeting multiple end-markets. The second major strategic deal relates to the mobile market, where we concluding a long-term licensing agreement with a leading U.S. OEM to use our technology in their in-house 5G modem. We anticipate that this agreement will lead to significant market share expansion of our wireless communication IP. We expect this agreement to drive a meaningful, long-term royalty stream in the years to come. These types of long-term strategic engagements with industry leaders serve as a cornerstone of our future growth. By aligning our IP portfolio and their product roadmaps, we unlock more opportunities with our partners, create lasting relationships and improve our long-term profitability. In addition to these two strategic connectivity deals, our AI products achieved key milestones this quarter, including signing important licensing agreements for our AI DSPs and NeuPro-Nano NPUs with a first-time customer to accelerate their edge AI product roadmap and add new sensing-related features and capabilities. Market interest and demand for our edge AI portfolio continue to accelerate, both from existing and new customers, looking to solve the challenge of adding AI to their smart edge products. Our unified NPU portfolio scales from the smallest, most power sensitive embedded use cases required in MCUs and consumer SoC up to multi-engine NPUs for co-pilot, ADAS and other high performance use cases, providing customers with a solution that addresses their specific needs. Feedback from our customers has been overwhelming positive and we’re very encouraged by the progress we’re making on the edge AI front. Other agreements in the quarter include a multi-year Bluetooth extension with an existing mobile customer and multiple deals for our Wi-Fi and Bluetooth six and seven platforms with customers in consumer and industrials end markets. We also signed a software licensing deal with an OEM for our MotionEngine sensor fusion software targeting mobile products and a wireless communications platform deal with a customer designing a cellular IoT chip. Overall, we completed 12 deals in the quarter, three of which were with first-time customers and two of which were with OEMs. Now turning to royalties for the quarter, we continued our excellent momentum, delivering our strongest royalty quarter of the year and our fifth consecutive quarter of year-over-year royalty revenue growth. We also achieved an all-time high in royalty shipments, powering 623 million units in the quarter, the first time ever we have surpassed 600 million units in a single quarter. This milestone achievement was driven by record high shipments of both our Wi-Fi and Bluetooth IPs, with Wi-Fi shipments growing 110% year-over-year and Bluetooth shipments up 41% year-over-year. Smartphone shipments were up a healthy 27% year-over-year on the back of strong end market demand for low-end 4G and 5G smartphones, and we saw a notable sequential and year-over-year increase in 5G RAN shipments from our main customers. Our Audio and AI related shipments grew 94% year-over-year as smartwatches, wearables, soundbars and speakers are adopting our AI DSPs for more powerful chips to deliver immersive experiences for consuming music, gaming, movies and other multimedia. Likewise in TVs and PCs, our sensor fusion customer shipments grew sequentially and year-over-year to finish the year strong. Overall, this was our second highest quarter ever for royalties excluding mobile, reflecting the new royalty growth cycle that we have been highlighting in recent earnings calls. We’re particularly pleased to have achieved this through strength across multiple end markets, with multiple technologies and from a diverse array of customers. For the full year of 2024, we finished the year strong, delivering 10% topline growth, exceeding our expectations, reaching $106.9 million. Licensing and related revenue was $60 million, up 4% over 2023. We signed 43 licensing agreements in 2024 across our extensive IP portfolio; 11 of those deals were with OEMs who are integrating our IPs into their end products. In terms of end markets, 21 of the deals target consumer markets and 19 for industrial IoT with the remainder targeting mobile, including two with our anchor mobile customers that signed long-term agreements in the fourth quarter. 12 of the customers licensed multiple technologies from our portfolio, a clear indication that our strategy to offer a broad portfolio of IPs around connect, sense and infer is synergistic with addressing multiple needs of our customers. In terms of full-year royalties, we delivered strong year-over-year 18% revenue growth and shipped a record 2 billion CEVA-powered units, marking the first time in our history to reach this milestone number. Shipment strength was across the board, with numerous records achieved. To highlight a few of these, we powered a record 1.1 billion Bluetooth devices, a record 179 million Wi-Fi devices, a record 170 million cellular IoT devices, 340 million smartphones, and 170 million other smart edge devices powered by our DSPs, AI accelerators and sensor fusion software. In terms of end markets, consumer IoT was 53% of annual royalties, followed by mobile at 32% and industrial IoT at 16%. Looking ahead into 2025, we anticipate that our Wi-Fi royalties and shipments will continue to grow, with a number of high-volume Wi-Fi 6 customers getting into production and ramping now. Similarly, we expect continued growth of our Bluetooth and cellular IoT shipments with additional customers coming to market and strengthening our dominant position in these markets. Also, on the back of signing new long-term licensing deals with our two main mobile customers, we expect the royalty contribution from mobile to grow year-over-year. Now taking a step back and looking at CEVA in terms of business achievements and milestones, there are many this year, but I would like to highlight a few. In connectivity, we solidified our position as the outstanding leader in this domain in multiple areas. In 5G cellular, we completed several, repeat long-term deals with our anchor customers in mobile and wireless infrastructure, securing our IP and solidifying our position in their roadmaps for the next generations of products. We broadened our 5G customer base in the satellite and terminals markets, while adding multiple new customers for 5G V2X, cellular IoT and mobile broadband use cases. This enables us to service a diversified customer base across multiple 5G related end markets with our unified platform. In short-range connectivity, we signed significant deals for our recently introduced next generation Bluetooth 6 and 7 and Wi-Fi 7 platforms and established long-term strategic relationships with multiple global MCU leaders who are standardizing on our connectivity platforms for key areas of their product roadmaps. We also launched Ceva-Waves-Links, a new family of multi-protocol wireless solutions as we look to deliver more value to our customers who increasingly need combo solutions for their designs. This combo solution allows us to secure better deal economics and improved royalties. In sensing, we made significant progress with our Spatial Audio embedded application software, reaching production in headsets and earbuds with boAt, and winning new business with a global smartphone OEM for multiple headset and earbud SKUs to be launched in 2025. Our sensing DSP also entered production in the automotive ADAS market with one of the world’s leading automotive semiconductors companies towards the end of the year, and our audio/sound DSPs experienced strong year-over-year growth in wearables, home audio and wireless speakers, driven by increasing demand for advanced audio pre and post processing. As spatial audio and other complex audio and voice cases continue to evolve, our solutions are playing a critical role in enabling these next-generation user experiences. In inference, we introduced NeuPro-Nano, our new embedded AI NPU targeted at power-constrained devices and already signed multiple deals with lead customers looking to integrate it into their next generation SoCs. Overall, 2024 was a pivotal year for edge AI, with strong end market demand pushing companies to rapidly adopt AI capabilities in their end products accelerating a refresh cycle. Edge AI is highly synergistic with our connectivity and sensing offerings, which we believe will lead to significant increased interest and demand for our Edge AI portfolio from new and existing customers. These synergies are another strategy to drive larger deals with better economics for both licensing and royalties paving the way for revenue growth per deal in the years ahead. 2024 was a landmark year for Ceva. Our commitment to operational excellence and disciplined execution delivered exceptional results across many fronts. We hit major R&D milestones, launched multiple innovative products like the NeuPro-Nano Edge AI NPUs, all while doubling our non-GAAP EPS compared to 2023 and creating shareholder value. The progress we have made sets a strong foundation for an exciting 2025 and beyond. Our success is a testament to the dedication, passion and incredible efforts of our employees worldwide, and I'm deeply grateful to each and every one of them for their contributions. As for 2025, the shift from AI inference processing in the cloud to the edge continues to generate unprecedented demand for smart edge devices, driven by the need for lower power consumption, reduced latency and cost savings required to make AI ubiquitous in everyday life. This shift is a pivotal growth driver for us. We are committed to maintaining our leadership in connectivity, ensuring that all devices are seamlessly connected and capable of handling multiple protocols. This connectivity is complemented by our Samsung DSPN [ph] software and Edge AI NPUs, all of which enable the smart edge. Not only are we leading the way with IPs aimed at democrat design AI at the edge, but all of our IPs are inherently low power based on our strong heritage of processors and connectivity technologies designed for battery powered devices. With almost 20 billion super powered devices shipped to date, the majority of which are battery powered, low power is in our DNA. We continue our focus on improving deal economics by delivering greater value to our customers through multi-connect protocols, AI accelerators and software enhancements. Our apologies to offer complete IP solutions rather than just individual components, ensuring that our customers receive integrated high value offerings that drive their success and ours. By enabling the smart edge ecosystem, we are positioning ourselves as the forefront of this technology cloud revolution in multiple domains. I personally am incredibly excited for what's ahead for Ceva. Now I will turn the call over to Yaniv for the financial.

Yaniv Arieli: Thank you, Amir. I'll now start by reviewing the results of our operations for the fourth quarter of 2024. Revenue for the fourth quarter increased 21% to $29.2 million as compared to $24.2 million for the same quarter last year. The revenue breakdown is follows. Licensing and related revenue increased 33% to $15.7 million, an effective 54% of our total revenues, hence compared to $11.8 million for the fourth quarter of 2023. Royalty revenue increased 9% to $13.5 million, reflecting 46% of our total revenues up from $12.3 million for the same quarter last year. This is the fifth sequential year-over-year growth in loans. Quarterly gross margin came in as forecasted and guided, 88% on a GAAP basis and 89% on a non-GAAP basis. Our quarterly GAAP operating expenses for the fourth quarter was at the midrange of our guidance range of $25.8 million. Total non-GAAP operating expenses for the fourth quarter, excluding equity based compensation expenses, amortizations of intangibles and deal costs from $21.6 million also at the midrange of our guidance. GAAP operating income for the fourth quarter was $0.1 million, the first GAAP positive quarter in 2024, up from a GAAP operating loss of $2.8 million in the same quarter a year ago. Non-GAAP operating margins and net income were 15% of revenues at $4.5 million, 88% and 130% higher than operating margin of 8% and operating income of $1.9 million recorded in the fourth quarter of 2023 respectively. Strong business execution and expense monitoring contributed to increased growth and profitability. Financial income net was negative $0.1 million compared to $1.8 million of income for the fourth quarter of 2023, significantly lower than our estimate of $1.2 million. This was due to a significant fall in value of the Euro versus the U.S. dollar in the fourth quarter of over 7%, impacting the value of our euro dominated assets, especially French related tax receivables. GAAP and non-GAAP and taxes were approximately $1.7 million slightly higher than our guidance and affected by geographics of revenue recognized from deal and royalty revenues. GAAP net loss for the fourth quarter was $1.7 million, and diluted loss per share was $0.07 as compared to a net loss of $8.1 million and diluted loss per share of $0.34 for the fourth quarter of 2023. Non-GAAP net income and diluted earnings per share for the fourth quarter of 2024 increased by 12% and 10% to $2.7 million and $0.11, respectively, as compared to net income of $2.4 million, better than the diluted income per share of $0.10 reported for the same period last year. With respect to other related data Shipped units by Ceva licensees during the fourth quarter of 2024 were 623 million units, up 38% from the fourth quarter 2023 reported shipments. Of the 623 million units reported, 129 million units or 21% were for mobile handset modems. 459 million units were for concealed IoT products, up from 3.5 million units in Q4 of last year. 35 million units were for industrial IoT products, up from 27 million units in last year. Bluetooth shipments were a record high of 343 million units in the quarter, up 41% year-over-year. Cellular IoT shipments were 46 million units, up 37% year-over-year. And our Wi-Fi shipments were a record 66 million units, up 110% year-over-year. Wi-Fi royalties were up 175% year-over-year, driven by the higher royalty for Wi-Fi 6 products as shipment volumes continue to ramp-up. As for the year, our total unit shipments were 2 billion in 2024, up 22% year-over-year, which equivalent to more than 60 Ceva powered devices sold every second in 2024. Annual mobile modem shipments were up 19% year-over-year to 340 million units, reflecting robust demand for mobile and smartphones, which offer similar feature sets to more expensive midrange phones. Annual consumer IoT related shipments were 1.5 billion units, up 21% year-over-year. Annual industrial IoT related shipments were 126 million units, up 50% year-over-year. Wi-Fi, Cellular IoT and Audio AI shipments all showed strong year-over-year growth of 71%, 31% and 36%, respectively, from 2023. In terms of royalty contribution highlights, Bluetooth royalties were up 54% year-over-year, reflecting ASP uplift for newer generations of Bluetooth shipping with better royalty economics. On the annual financial metrics, revenue increased 10%, above our 4% to 8% initial guidance for the year. Our non-GAAP gross profit remained strong at 89%. Non-GAAP operating margins and operating income more than doubled to 90% and $10 million and net income and diluted earnings per share also doubled to $9 million and $0.36 for last year, all demonstrating and contributing to increased shareholders' value. As for the balance sheet, as of December 31, 2024 Ceva cash, cash equivalent balances, marketable securities and bank deposits were approximately $164 million. In the fourth quarter, we purchased approximately 32,000 shares for approximately $1 million and for the year, we repurchased approximately 375,000 shares for approximately $8.5 million. And today, around 1 million shares are available for repurchase under the repurchase program as expanded in November of last year. Our DSO for the fourth quarter of 2024 was around 50 days, similar to the prior quarters. During the quarter, we generated $8 million of cash from operating activities. On-going depreciation and amortization was $1.1 million and purchase of fixed assets was $1 million. At the end of the fourth quarter, our headcount was 428 people, of whom 349 were engineers. Now for the guidance. Amir highlighted our 2024 achievements and our strong building blocks for longer term growth and profitability as we continue to execute on our strategy that we first presented in our December 2023 Analyst Day – Investor Day. In 2024, we managed to execute better than our plan and achieve important milestone. This process – this progress has enabled us to project 2025 with another year of growth for multiple financial and business aspects. We have a healthy background and promising pipeline of prospects as well as several positive trends and tailwinds with regards to continued market penetration for Bluetooth, Wi-Fi, Cellular IoT and Smartphone Technologies. On an annual basis, our total revenue is expected to grow 7% to 11% over 2024, with lower growth in the first half of the year and higher in the second half, similar to prior year and seasonal trends. On the expense side, we plan to increase our 2025 overall expense levels including both cost of revenue and OpEx at a significantly lower growth rate than our top line growth and at the range of 2% to 6% or $99 million to $103 million for next year. Overall non-GAAP total [ph] expense is expected to increase by approximately $2 million and our non-GAAP OpEx is expected to increase by approximately $2 million. From the guidance and activities we have just discussed, we anticipate non-GAAP operating income and operating margins as well as non-GAAP net income and fully diluted EPS to grow significantly year-over-year by approximately 48% to 52%. Specifically, for the first quarter of 2025. With typical seasonality shipments of consumer IoT and mobile products post the holiday season, we expect overall revenues to be sequentially lower and in-line with Street estimates, still significantly higher than the first quarter of 2024. Revenue is forecasted to be $25.5 million to $27.5 million. Gross margin is expected to be slightly lower than what we just reported for the fourth quarter due to lower seasonal royalty revenue and allocation of design activities for strategic customer. We forecast 87% on a GAAP basis and 88% on non-GAAP basis. Excluding an aggregate of $0.1 million of equity based compensation expenses and $0.1 million for amortization of acquired intangibles. GAAP OpEx for the first quarter is expected to be in the range of $25.1 million to $26.1 million, a bit lower than the level we just reported for the fourth quarter. Of our anticipated total operating expenses for the first quarter, $4 million is expected to be attributed to equity based compensation expense, $0.2 million for amortization of acquired intangible and $0.1 million of costs associated with business acquisition. Our non-GAAP OpEx is expected to be in the range of $21 million to $22 million also just below the fourth quarter 2024 levels. When interest income is expected to be approximately $1.3 million, taxes for the first quarter are expected to be approximately $1.2 million and share count for the first quarter is expected to be 25.4 million shares. Rocco, you can open the Q&A session, please.

Operator: Thank you. [Operator Instructions] Today's first question comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Kevin Cassidy: Yes, thanks for taking my question. Congratulations on the great year, good quarter and ending the year. Just my question on the MCUs, as we're talking about AI moving to the edge, more and more of the processors need to have integrated MPUs. So with your license agreement with the MCU player or maybe just in general the MCU players in the market, is there an opportunity not only for your wireless but for the MPU to get integrated into these OEM MCUs?

Amir Panush: Yes, Kevin, thanks for the question. This is Amir. Yes, definitely. In this case, we highlighted basically our wireless technology as a license across the board to the MCU top tier customer. In addition to that, definitely as we mentioned we licensed in other deals, our new phone Nano NPUs that goes very nicely alongside our wireless connectivity and cell phone technology, all those different MCU players. So what we definitely see is the trend that all the MCU players now adding more and more AI capabilities, with that and that level of investment, there is a different level of gaps in technology needs that we need from us to come and have them to deliver in the market. And overall, what we see on our surface as the player that can enable the MCU marketplace to integrate different type of technologies from connectivity to AI as well.

Kevin Cassidy: Okay, great. And I wonder if you could provide any detail on your U.S. mobile OEM with their in house 5G modem of when the royalty revenues start and maybe kind of what the run rate looks like and how it increases over time?

Yaniv Arieli: Thanks Kevin. Good morning. We cannot expand beyond what we said in the prepared remaining other than the fact that we decided to continue and work with this customer. And we're excited about the opportunity for this specific deal. As any other customer is liking for a technology is up to them to set the tone and the timing and the ramp up volume. And when we get the royalty reports we'll have a better idea from other customers, including this one, and that's true for others as well. So it's an exciting opportunity, and we're looking forward to it in the next – for the next couple of years.

Kevin Cassidy: Okay, great. Thanks and congratulations again.

Amir Panush: Thank you.

Operator: Thank you. And our next question comes from Suji Desilva with Roth Capital. Please go ahead.

Suji Desilva: Hi, Amir, Yaniv. Congratulations on the strong calendar 2024 for me as well. So maybe you could talk a little bit about the AI news recently about the DeepSeek model in China and the lower potential footprint for LLMs, expanding the edge opportunity. Maybe you could talk about, if you see DeepSeek is helping accelerate your opportunity and if you've seen China kind of infer activity picking up around this?

Amir Panush: Yes, definitely, Suji. This is Amir. Two comments here. One, first, on so called the different regional innovation, we see both the U.S. market and the Western world as well as China really innovating a lot in the AI domain. And this is really great opportunity for us across the globe. In terms of the new models that are coming out, this is exactly what we were looking for and anticipating that will come, which basically means a much more optimized model that can run with a smaller footprint and can drive lower power type of devices, enabling the LLMs to run locally, what we have talked about for a while, the smart edge. So we definitely see that as an accelerator to enable the different devices around us to be able to run different type of LLMs and provide great type of accessibility and lower cost structure to drive higher volume and adoption across the edge devices. So far, this is – we were very happy to see the innovation and the progress globally as well as with this specific case.

Suji Desilva: Okay.

Amir Panush: And with that, I would say that if we look at our activities today overall, what we are seeing is even more velocity and further increase of demand and interest of output of NPUs and overall the ability to run AI models on the edge.

Suji Desilva: Okay. Thanks, Amir. And then on Wi-Fi, it seems like that's going to be a strong growth driver for 2025. I'm wondering if we should expect the penetration to kind of hit an S-Curve that where your penetration is today if it hits an S-Curve similar to Bluetooth or whether it be a steady kind of penetration increase? And if you could just touch on which end markets Wi-Fi – will drive the Wi-Fi growth in 2025, that would be helpful? Thanks.

Amir Panush: Yes. So we are right now really in the midst of the transition from the Wi Fi 4/5 to Wi-Fi 6. We licensed to more than 40 different customers in the last few years. So this is really where we're start seeing the acceleration. Already 2024 was a very strong growth year for us in terms of Wi-Fi shipment volume, as well as higher ASP per unit as the transition to Wi-Fi 6, as we alluded already in the Analyst Day – on Analyst Day at the end of 2023. And with that 2025, we definitely expect to see even further acceleration of that growth. And as well as you talking about the use cases and the proliferation, the Wi-Fi 6 is the strongest technology in [indiscernible] penetration across all the different IoT markets and submarkets. This is the standard that really helped to not only increase the throughput in terms of data throughput, but also increase capacity and better utilization of the spectrum on the edge of so called IoT devices. So this is really – we are in the middle and really in the acceleration of the transition of our customer base moving to Wi-Fi 6.

Yaniv Arieli: I will add maybe a little bit more about the history. Remember, when we started in 2020 to license Bluetooth, it took few years of licensing activity, then it took few years to ramp up. And this year we've reached 1.1 billion devices. In 2023, two years ago, about 50% of the Bluetooth deals are ultimately included the Wi-Fi and Bluetooth as a combo chip. And this year we've reached the one almost 180 million units for Wi-Fi. So the opportunity in the next couple of years for Wi-Fi and Bluetooth type combo chips with higher ASPs as we saw just starting to pick up in 2024 is really some of the very, very exciting growth opportunities in the next couple of years. Anywhere between that 180 million units for Wi-Fi to the 1.1 billion Bluetooth devices is where we're going to see ourselves in a few years.

Suji Desilva: And just to clarify, if you saw a combo you counted as one Bluetooth and one Wi-Fi?

Yaniv Arieli: That's correct.

Suji Desilva: Okay, great. Thanks guys. Thanks Amit. Thanks, Yaniv.

Amir Panush: Thank you.

Operator: And our next question today comes from Gus Richard with Northland. Please go ahead.

Gus Richard: Yes. Thanks for taking my questions and congratulations on great results. Just in terms of modeling that you've done for the year and sort of your expectations, do you expect your cell phone modem revenue to grow faster than your Wi-Fi or will Wi-Fi outstrip that? Just relative growth rates would be helpful.

Yaniv Arieli: Yes. I wish I would have known what to answer here, but half of our business is royalties. And those royalties we understand the trends, we know the players in the industry of each of the industries we play in. We have very good relationship with many of them. But what we don't have the crystal ball is really to the ramp up timing and to the volume of any player. It could be a handset player, it could be a Wi-Fi or an AI or an automotive play, which we have added late last year for the first time after many, many years. And that piece is missing from our model on a longer-term basis. And as soon as we see some of our new customers starting to shake, that gives us new information that we could build on and build our models from. But sometimes until the first batch starts, we don't have exactly that crystal ball. So a lot of good moving pieces. And looking into 2025, hard to say exactly if it's a Q1 or Q2 or Q4. Usually the seasonality of some of the consumer IoT less than the industrial IoT in the second half loaded. That's historically been the case. But that could change if any big enough customer or customers and markets pick up for whatever reason earlier in the year. So a lot of moving pieces and that looks quite positive, but can't tell you what market today in February will end up the strongest for 2025.

Amir Panush: I would add that in addition to what Yaniv – yes, I would add to what – in addition to what Yaniv said. Sorry.

Gus Richard: Go ahead, sorry.

Amir Panush: Okay, thanks. I would add that in addition to what Yaniv said. Overall, we are extremely encouraged with the royalty growth and the volume shipment that we have seen in 2024 literally across all our product lines and markets. With that we expect significant growth also continuing in 2025 across our Wi-Fi, Bluetooth, mobile, cell IoT and even potentially in 5G WAN. So overall we see that it's really positive for us moving forward. With that in mind, generally speaking, we see the first half so called slower than the second half and really strong acceleration in the second half.

Gus Richard: Got it. And then just a quick question on AI, the models seem to be bifurcating between large language models and reasoning language models or train of thought. And it sounds like and the reasoning models need more compute, more memory. Is the edge going to be dominated by LLMs? Or is there an opportunity for the reasoning model sort of how do you think about the market as it evolves and are you positioned to capture both or does one just not matter?

Amir Panush: Yes. So first from the market, our expectation is we'll see that the multiple tiers of technologies capabilities and the demand of the technology. So we will see the very low tier, simple, simple models all the way to somewhat more sophisticated LLM that still can be efficient and cost, power and size wise to be able to be run on the edge. From our perspective, of course our strategy is to be able to deliver the complete portfolio of AI accelerators or AI NPUs that can support all the way from the [indiscernible] operation that typically goes with the long mid-tier MCUs all the way to the high end hundreds of TOPS up requirements on the edge from more sophisticated SOC that you can see in mobile, PC, automotive ADAS systems and so on. So we definitely see that fabrication happening on the edge. And with that our technology and portfolio will support it. And we are super excited about these events [indiscernible].

Gus Richard: Thanks.

Operator: Thank you. [Operator Instructions] Our next question comes from Chris Reimer with Barclays. Please go ahead.

Chris Reimer: Hi. Thanks for taking my questions and congratulations on the strong quarter. I wanted to ask about any of the new licensing deals and whether they might also include some of the customization that you spoke about last quarter and this quarter that was kind of just pressuring the gross margin a little bit. I'm just wondering going forward. I know you mentioned that due to seasonality, the gross margin in the next quarter would be a little lower, but are we going to see any more of that customization come in with the new licensing deals or do you have any visibility on that?

Yaniv Arieli: Yes. great question. Thanks for that. So the answer for this quarter is no, we don't have any customization. These are all off-the-shelf technology that we already have and are happy to offer and deliver to our customers immediately. Those leftovers from last year's deal, they are very large mobile space, mobile type is going to continue a few quarters into 2025. So it's not a new deal from Q4, but it's still the deal from Q3 that we signed started to pick up a little bit now in Q4, but most of the work will happen now in 2025 and those are the leftovers. And why just a notch to lower in the gross margin also for Q1 because the royalties are usually the lowest quarter of royalty is just because of the seasonality and that will change over the year.

Chris Reimer: Got it. Thanks. And just regarding the NeuPro solution, did you say earlier that there were two deals on the quarter?

Amir Panush: In the quarter, we had one deal of the NeuPro and one deal of our DSP, both for AI application.

Chris Reimer: Oh, okay. Thank you. That's clear. Oh, that's it for me.

Amir Panush: Thank you.

Operator: Thank you. And our next question is a follow-up from Kevin Cassidy of Rosenblatt Securities. Please go ahead.

Kevin Cassidy: I'm sorry, I didn't mean to ask for a follow-up, sorry.

Operator: No problem at all. And ladies and gentlemen, this concludes the question-answer-session. I'd like to turn the conference back over to Amir Panush for closing remarks.

Amir Panush: Thank you. On behalf of CEVA team, thank you for joining us today. We are proud to have delivered strong year-over-year growth in our licensing and royalty businesses, capping off a successful year with a compelling roadmap of innovative IPs that enable edge devices to connect, sense and infer data. We are confident in our ability to drive long-term shareholder value in the smart edge era. As we continue into 2025, I wish you and your families a happy and prosperous year. I look forward to connecting with many of you at upcoming industry events and conferences throughout the rest of the year. Richard, I will hand over to you to wrap it up.

Richard Kingston: Thank you, Amir. Thank you, everybody. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8K and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences

Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.