CEVA Inc (CEVA) 2014 Q4 法說會逐字稿

Good morning and welcome to the CEVA, Inc. Q4 and year-end 2014 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston. Mr. Kingston, please go ahead.

Thank you and good morning, everyone. Welcome to CEVA's fourth-quarter and annual 2014 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the quarter and year. Yaniv will then cover the financial results for the fourth quarter and annual 2014 and will provide guidance for the first quarter of 2015 and general quantitative data for 2015.

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 our financial guidance for the first quarter of 2015; timetable for initial shipments of products incorporating our IP by customers, belief that CEVA's IP will power 700 million to 900 million non-baseband devices annually by 2018; optimism about our licensing pipeline and royalty revenue growth in mobile Internet and the IoT space; optimism about market dynamics favoring baseband royalty growth in 2015 and beyond, including higher ASPs and increased shipment volumes; less adverse financial impact in relation to the market exits of Broadcom, Intel, and ST; level of expenses for the RivieraWaves retention scheme; and continuation of our buyback program.

The risks, uncertainties and assumptions include the ability of CEVA DSP cores to continue to be strong growth drivers for us; recovery of the baseband market; our success in penetrating new markets, specifically non-baseband markets, and maintaining our market position in existing markets; our ability to successfully integrate the RivieraWaves business; the ability of new products incorporating our technologies to achieve market acceptance; the speed and extent of the expansion of the 3G and LTE networks and the IOT space; the effect of intense industry competition and consolidation; global chip market trends; 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 will now hand the call over to Gideon.

Good morning, everyone and thanks for joining us today. I am very pleased to report a strong fourth-quarter result coming at the high end of our guidance with the combination of a continued strong licensing environment and 20% sequential growth in our royalty revenue. Total revenue for the fourth quarter was $13.8 million, license fees and other revenue was $7.4 million and royalty revenue was $6.4 million. We signed 11 new license agreements in the quarter. Six of the agreements were for our CEVA DSP cores, platform and software, and five were for our connectivity products, mainly Wi-Fi and Bluetooth. 10 of the deals signed were for non-baseband applications and one buildout for LTE baseband processing and handsets. Six are first time CEVA customers.

The resulting baseband deals signed during the quarter, it was a comprehensive agreement for leading-edge DSPs signed with a semiconductor company that we associated with a leading tier one OEM. At this stage, we are unable to elaborate further on this deal. The non-baseband deals signed during the quarter are with customers targeting a wide range of growing markets, including small town tablets, advanced driver assistance systems, (inaudible) system, satellite communication, G. fast modems, advanced hearing aids, game consoles and more.

Geographically, two of the agreements were in the US, two were in Europe and seven were in Asia, including Japan. And (inaudible) LTE shipments are up both sequentially on a year-over-year basis and in fact, the quarterly LTE shipments exceeded the entire annual shipments of 2013. We also experienced an increased shipment in 3G wideband CDMA smartphones and in feature phones. The LTE and 3G wideband CDMA segments are the main growth vector of the handset space overall and here are core strengths we will drive.

Let me take the next few minutes to provide you with our perspective on the business trends we experienced in 2014 both in licensing and royalty fronts. Overall, in 2014, we have signed 36 license agreements, 32 of which are non-baseband applications and 17 are with sale to current CEVA customers. The combination of advanced technologies and complementary software of our new non-baseband technology led to strong licensing dynamics and revenue growth of 27% year-over-year. It clearly illustrates the success of our strategy to expand our market reach and licensee base beyond the baseband market.

In light of this diversification and the changed business model or quantified US key customers, we decided to write off a deferred tax asset in the US of $3.4 million, which was a total writeoff of the deferred tax asset and (inaudible) at [111]. In general, we see substantial growth opportunities derived from the ongoing evolution of the Internet, (inaudible) mobile Internet and the Internet of Things. To address these opportunities in high volume, we are basing our strategy on three product pillars -- vision, voice/audio/sensing and connectivity.

Recent processing technologies are increasingly being deployed to enrich the experience in small phones, cars, cameras and many more applications. Our third-generation DSPs, CEVA-MM3101, (inaudible) [3K] for short, is regarded as the most advanced and mature technology, so visual processing and also power consumption at a fraction of what a CPU or GPU can achieve for vision in those cases. It is currently deployed in SoC targeting smartphone action cameras and DSLR cameras to enhance performance in regard to digital stabilization, zoom, lowlight environments and more.

Also in the emerging advanced driver assistance safety or ADAS market, MM3K is a centerpiece that we need cars that will be coming fully autonomous. Beyond that, the MM3K technology applies to ground surveillance medical and numerous other industrial applications. We have signed up so far more than a dozen licensees and more than 30 ecosystem partners to support this technology. We already have customers sampling chips and expect initial shipments in the later part of the year.

The voice/audio/sensing productline leveraging on our very successful CEVA-TeakLite DSP franchise (inaudible) architecture in the mobile space. The latest generation TeakLite [sold] is posited for extremely low power applications like (inaudible) on various controlled smartphones, wearables and smart home and the like. We have accumulated more than a dozen customers in these spaces. Some are expected to be implemented during this year.

Our third product pillar is connectivity, which includes Bluetooth and WiFi technologies. The connectivity space is very demanding and fast-growing both in items of new technology and products. Via our acquisition of RivieraWaves, we are at the forefront of this revolution already offering the latest kind of the Bluetooth low energy and WiFi 802.11ac, including the highly complex cell-based (inaudible) technology used on the access front and small [service].

I'm extremely happy with how the integration of our RivieraWaves is progressing. We have a solid strategy with competitive product roadmaps and have already signed 11 new licensing agreements in the last six months and have the good visibility going forward. These three product pillars are the foundation on which we are successfully implementing our strategy for future royalty growth beyond baseband. In this regard, I would like to reiterate our near-term expectation for royalty revenue growth from non-handset baseband products to ship in the region of 700 million to 900 million units by 2018.

Let me now turn to the royalty part of our business, the majority of which relates to (inaudible) processing chips for handsets. After two years of turbulence in the chip supplier landscape and with chip pricing, things appear to be stabilizing and turning to stable figure at its existing customer base. There are three key factors that have the potential to drive baseband priority growth into 2015 and beyond. LTE unit shipment growth powered by CEVA, the replacement of feature phones with low-cost smartphones, the expansion of cellular-related devices beyond handsets into other areas, including tablets, PC, connected cars and other machine type communications.

The following are a few data points that provide perspective on the magnitude of these factors. According to GSMA intelligence, the total number of LTE connections across the world will increase from 400 million today to 2.5 billion by 2020 and 60% of these connections will come from developing regions, up from only 5% in 2013. According to Gartner, more than 8 billion smartphones are forecasted to be shipped by 2018, 2X the installed base as of today. The majority of this relates to firsthand smartphone user migrating from feature phones.

In addition, non-handset cellular-enabled device shipments are expected to grow at (inaudible) of 19% between 2014 and 2018 to a total of 450 million units in 2018 according to ABI Research. We are set to be a primary beneficiary of these trends as evident in our recent quarterly report. Our key baseband customers such as (inaudible) and Samsung (inaudible) core and now all have commercial chips and design wins in the LTE space. Our strong position in the feature phone space with approximately 75% worldwide market share provides us with the commodity foundation and customer relationship that can be leveraged as the market (inaudible) to smartphones.

We are also gradually expanding our licensee base in the baseband space. In 2014, we added two new semiconductor customers for baseband and believe more new entrants will emerge as the years of LTE expense to applications such as connected cars, smart CT and higher IoT in general. All in all, we believe we're at the beginning of royalty revenue growth trajectory characterized by higher ASPs and growing earnings derived from consumer migration to CEVA-powered LTE and low-cost smartphone.

In conclusion, CEVA is relentlessly focused on delivering best in group innovative cost-effective solutions to its increasingly diversified customer base. We are determined to use our inventiveness and unparalleled commitment to capture any DSP or connectivity-related opportunities.

We are geared on creating value for our shareholders via growth in our business and capital return, as we have shown last year, was 27% year-over-year growth in licensing and approximately $19 million in share buybacks.

Finally, I would like to take this opportunity and thank our employees, including our new team in France, (inaudible) and to wish you happy and [prosperous] yields. With that said, I now turn the call over to Yaniv to outline our financials and guidance.

Thank you, Gideon. I will start by reviewing the results of our operations for the fourth quarter 2014.

Revenue for the fourth quarter was $13.8 million, at the higher end of our range, primarily due to strong licensing revenue and 20% sequential increase in royalty revenue. The revenue breaks down is as follows.

Licensing and related revenue was $7.4 million, reflecting [53]% of our total revenues, 1% higher as compared to the comparable quarter in 2013. Royalty revenue was $6.4 million, reflecting 47% of total revenues, up 20% sequentially after recording 10% sequential increase in the third quarter, but is still down 4% on a year-over-year basis.

Quarterly gross margin was 91% in both GAAP and non-GAAP basis. Non-GAAP basis excluding approximately $34,000 for equity-based compensation expenses.

Our total operating expenses for the quarter were $12.2 million, along the midrange of our guidance. Total OpEx for the fourth quarter included the required RivieraWaves expenses. OpEx also included an aggregated equity-based compensation expense of $1 million and (inaudible) related retention expenses of $0.7 million and $0.3 million for the amortization of the required intangibles, all associated with the acquisition of RivieraWaves.

Our total operating expenses for the fourth quarter, excluding equity-based compensation and amortization, were $10.9 million, slightly above the midrange of our guidance.

Other income was $0.1 million, mainly due to devaluation of the euro cash balances at RivieraWaves as the dollar strengthened significantly compared to the euro and resulted in FX losses for the quarter.

Taxes included a one-time write-off of certain deferred tax assets of approximately $3.4 million due to the change in the business model by one of our key US customers that decided to exit the baseband space. The non-GAAP effect for this quarter is a tax expense of $1.2 million.

This GAAP loss for the quarter was $1.9 million and diluted loss per share was $0.10. This compares to net income of $3.1 million and fully diluted net income per share of $0.14 for the fourth quarter of 2013.

Non-GAAP net income and diluted earnings per share for the fourth quarter of 2014 were $1.7 million and $0.08, respectively, representing a decrease of 61% and 60% over $4.5 million and $0.20 reported for the fourth quarter of 2013, respectively.

Non-GAAP net income and diluted earnings per share for the fourth quarter excluded equity-based compensation expenses of $1 million, the impact of amortization of acquired intangibles net of tax of $0.2 million associated with the acquisition of RivieraWaves, $0.1 million of costs associated with the acquisition costs, and a one-time write-off of the deferred tax assets related to stock-based compensation of approximately $2.2 million. Our non-GAAP net income and diluted earnings per share for the fourth quarter of 2013 excluded an aggregated equity-based compensation expense of $1.3 million.

Other related [data], shipped units by CEVA licensees during the fourth quarter of 2014 were $255 million, up 18% sequentially and 4% from the fourth-quarter shipment of 2014. Of the 265 million units shipped, 223 million, or approximately 87%, were for baseband chips, reflecting a sequential increase of 15% from 195 million units of basebands shipped, an increase of 4% from [2000 and 15 million] units shipped a year ago.

In the non-baseband, volume shipments increased approximately 55% sequentially, primarily driven by initial ramp up in the Bluetooth shipments from a number of our customers. As of December 31, 2013, 29 licensees were shipping products incorporating our technology.

As for the balance sheet, at year-end Siva's cash, cash equivalents, balances, marketable securities, and bank deposits were approximately $130 million. In the fourth quarter we paid approximately $0.4 million as part of a prior commitment from acquiring RivieraWaves. In addition, we have future pending payments of approximately $3.6 million in connection with this acquisition.

Our DSOs for the fourth quarter were similar to the third-quarter level at around 55 days. On buyback, during 2014 we successfully purchased 2 million shares of our common stock at an aggregated consideration of $31 million and [concluded] the plan. Our Board of Directors approved last October a new repurchase plan for an additional 1 million shares. We plan to continue our stock buyback activity in 2015 and look for other strategic investments that can reinforce our market leadership in DSP and in connectivity IP.

Now for the guidance. As licensing our non-baseband product lines of vision, audio, and connectivity are experiencing healthy demand from the diversified customer base. We are, therefore, reiterating our commentary made last year of a 25% increase in annual licensing revenue range from our historical annual license revenue of about $22 million.

On a quarterly basis, the licensing revenue can fluctuate due to the timing of deal closures. We believe that the quarterly licensing revenue of $6 million to $7.5 million per quarter is our new contract range.

On royalties, as Gideon just explained, we believe that we are set to grow -- to benefit from growth vectors in the handset space, primarily in the expected LTE ramp up from a number of our customers beginning this year. Investing both Chinese LTE expansion and the global LP smartphone market. As well as from the adoption of low-cost smartphones, in particularly 3G wide-based CDMA by first-time users in developing countries.

We also expect less adverse finance impact from the ongoing unit reduction of the legacy feature phones at Broadcom, Intel, and ST Ericsson as the majority of such reductions will be replaced by other CEVA customers. We, therefore, expecting our royalty revenue for the year to grow in the range of 10% to 30%, subject to the pace of progress by our customers that we'll make in the smartphone markets, as I just discussed.

Our guidance for the first quarter, revenue for the first quarter is expected to be in the range of $12.7 million to $13.7 million. Gross margin is expected to be approximately 91% on both GAAP and non-GAAP basis. Unit GAAP operating expenses are expected to be in the range of $11.5 million to $12.5 million.

Of our anticipated nonoperating expenses for the first quarter, $1 million is expected to be attributed to equity-based compensation expenses and $0.3 million to amortization of the acquired intangibles. Our non-GAAP OpEx is expected to be in the range of $10.3 million to $11.3 million. Net interest is expected to remain low and is anticipated to be around $300,000 moved to lower cash balances and yields.

Tax rate for the first quarter is expected to be approximately [14]% on a non-GAAP basis. Share count for the first quarter in the range of 20.9 million to 21.1 million shares. US GAAP fully diluted earnings per share is expected to be approximately zero to $0.02 and non-GAAP EPS forecast, excluding aggregated $1 million for equity-based compensation expenses net of tax and amortization tax expenses of $0.3 million, is expected to be in the of $0.06 to $0.08 per share.

Operator, you can now open the Q&A session.

(Operator Instructions). Gary Mobley, Benchmark.

Congratulations to a strong finish to 2014. I had a question relating to your outlook for non-baseband royalty units. Just to clarify, Gideon, did you mention that you anticipate generating royalty revenue of -- from non-baseband units in the range of $700 million to $900 million by 2018? And in consideration of that, do you expect your non-baseband royalty units to grow in 2015 or does that have to wait until 2016?

As I said in my prepared remarks, we are going to see new products coming into the market. We don't know yet exactly what the magnitude of that, but if you're asking about how it's going to -- this 700 million, 900 million units going to shape up between now and 2018, it will start to slow, but we are going to see more noticeable impact in I believe 2016-2017. Bear in mind how it works. We need to accumulate licensees. In (inaudible) market, you have to accumulate a bunch of licensees. You see this quarter we have 11 deals and that's the amount of deals that we are expecting between 7 to 10 deals every quarter, lots of them are new customers and by the way, their time-to-market is pretty fast. If you have a Bluetooth or Wi-Fi technology, these guys can tear down product in 9 to 12 months.

So overall, 2015, I am not expecting a noticeable effect, but we are going to see product coming to the market total for 2016 (inaudible) become normal.

Okay. I noticed that your royalty rate per unit in the fourth quarter increased about a low single-digit percent quarter-over-quarter. Was that all attributable to a greater mix of 4G-related baseband royalty units? Can you clarify the amount of 4G-related royalty units you had in the fourth quarter? I think you mentioned that it was higher in the fourth quarter compared to all of 2013. Is that how you summed it up?

Gary, it's Yaniv. I will try to answer. On LTE, this is the highest quarter we ever had, just shy of 7 million units that we powered and of course much higher ASPs than the norm, so that helped. It's still a smaller fraction out of 255 million units overall. It is helpful. It is a good tailing for us, but still not the huge magnitude.

On top of that, we also said that this quarter, the first time if you look at the unit volume, usually for a long time, the 90% baseband, 10% non-baseband was last quarter looking more at the 17% non-baseband and then 13% baseband. So there is still just the usual rampup that I didn't mention and due to specifics already happening now in the last quarter.

Gideon, I would add also 3G wideband CDMA. We are accumulating very fast volume there; it was all in the 3G wideband CDMA. I think it is only between media taking spread room and those guys are taking over all the -- what is called all the field shipments, India and Indonesia and all those places.

Okay, you mentioned in your press release a license deal with a baseband supplier tied specifically to a leading handset OEM. You referred to the licensee as a new chip company. To clarify, is this the first time you licensed with this particular chip company?

Yes, and that's it basically. No more information about this.

All right, fair enough. Last, I wanted to touch base with you on a development this week related to one of your licensees that also supplies captive silicon for some of their leading edge smartphones. It's my understanding that Samsung is going to favor its Exynos processor and maybe some of its flagship smartphones and perhaps that is a function of them feeling more confident about their captive solution manufacturer on the 14 nanometer process. If in fact they think it is a superior solution versus some of the merchant solutions, do you anticipate benefiting from more usage of that Exynos processor looking out into 2015 and beyond?

We cannot refer specifically to all those, I don't know if it's rumors, if it's facts, about (inaudible). In general, we know that Samsung is using our technology. There are other things and we'll see how the year progresses, and hopefully everybody will know about it.

All right. Thank you, guys.

Suji De Silva, Topeka.

Congratulations on the year and also getting the royalty units back on track with past levels. So a couple of questions here on the -- first of all, in China, can you talk about the smartphone inventory conditions? I know there was concerns about inventory into the end of 2014, so coming out of those into 2015 and what do you see resumption of growth in that area?

I think if you look at our overall guidance with (inaudible), for Q1, we are expecting the normal seasonal decline in royalties is somewhere between 5% to 10% from Q4. We've seen it for the last couple of years; it's nothing new to us and I think that addresses your question because a lot of OEMs are holding back and waiting for post-Barcelona and the (inaudible) March/April timeframe to come out with a new 2016 model.

With that said, we believe in our model that first-quarter royalty revenue for Q1 2015 will be higher on a year-over-year comparison. So we have the same seasonality and the same effect that you just mentioned, but with that said on a dollar base and a unit basis, we will be better in 2015.

Okay, great. That's helpful. And then for the feature phone units, at this point, should I think of it as stable or are they mixing up to 3G so that would decline? How should that progress?

First off on feature phones, what we are seeing today is all those units that are left over by SPI and Broadcom and to some extent (inaudible) taking them over by other majority of people, our customers. So overall, I see markets are obviously (inaudible), but if you look between now and 2019, feature phone is expected to be declined by minus 1% and the explanation for this one there are still places in the world that don't have phones. So overall we are expecting feature phones in terms of pricing to be overall stable and units still be high, but no doubt that if you take India and Indonesia and these places, they are going to 3G very fast.

Okay, then LTE, how would you characterize the growth expectation for 2015? Is it going kind of midmarket versus high end where it can be a significant unit growth opportunity or just a steady high-end unit growth opportunity? How would you characterize LTE?

We saw markets that we think that in China -- the places that you are going to see LTE growing fast is in China. We are speaking going from 100 million this year to -- last year to 230 million this year. Basically 66% of the phone, smartphones in China will be LTE. And that will be need to low end size with that now $65 for LTE with quad cores of ARM. So that's why you will -- that's the point that we are hitting. That is where we are expecting to get the volumes, the sweet spot.

Great. All right, thanks. Congratulations again, guys.

Joseph Wolf, Barclays.

Thank you. Good morning. With all these moving parts in the business now as you move towards a more broad-based source of royalties, but right now in a licensing stage, could you just review for us kind of, to the extent that you can, the ASPs that we should be expecting across this as we try and build a model for a 2015-2016 scenario? And if we look at all but the feature phones, the 3G, LTE and then in the non-handset business starting with Bluetooth and some of the newer applications, and then some end markets where we could expect to see the first wins in terms of royalty volume.

Yes, that's a nice question. You are right that there are lots of moving pieces and therefore we need to look at more averages and market segments. Let's start with the baseband and then move on. The baseband -- the most interesting near-term opportunity is around the LTE. We have waited for that for the last two years and I think based on the numbers of LTE shifts, you are up from 4 million units in 2013 to 11 million in 2014 and that is rounding up the numbers to millions.

The opportunity here potentially could be in the tens of millions. Gideon talked about 330 million units structured in China and of course, I think our customer base there all around the Intel disruption, the [fountains] and the lease cores of the world are aiming at that growth market without having a lot of the devices. So that is the biggest opportunity for us and average LTE would be 3X the run rate, the average run rate we have from today, 3 to 4X even.

If you look at the change from feature phone to smartphone, and Gideon talked about the emerging economies, we have around 65% to 75% marketshare because in the core the majority of the market is CEVA-powered these days. We could see 2X increase of that market and those people using a very simple feature phone will change their phone to a low-cost smartphone. By the way, low-cost smartphone today in the market are in the range of $40 to $50. Gideon mentioned that LTE starts at $65 to $80. So these are the type of products that are expected in feature phones, but north of the (inaudible) 2X.

If you look to the connectivity, the market is 10 times larger and instead of talking about 4 billion -- 3 billion or 4 billion units a year, we are talking in a few years time $25 billion. A huge market and this is what we stated in the press release and in this call earlier that we want to have stability in the 700 million to 900 million new non-baseband devices by 2018. You have a one (inaudible) device type of an ASP for a Bluetooth device. It could be a hearing aid. It could be a portable mouse, keyboard and a bunch of home connectivity type of devices and it's really in this productline, variables and Internet of Things. It could be WiFi in the same range that we see today, somewhere between (inaudible) to 2X. Depends on the application and the market and it could be the strengthening and the new market vision in our view and ADAS and DSLR cameras that we could be looking at 2X to 3X the average of your ASP levels today.

So sorry for this long answer, but many, as you mentioned, parts to this model. The key is that we have seen volume growth for the last three quarters and you are seeing dollar amounts increase in a pretty nice potential. We believe that royalties in 2015 could grow in the neighborhood of 10% to 30%.

Just as follow-up -- that was very helpful, thank you, Yaniv. If you look at the Bluetooth revenue that Riviera is providing you, can you just give us kind of a breakdown maybe in percentages of what your old connectivity, your Bluetooth business or that CEVA-owned, what Riviera adds, and where these applications are if we think about the end markets where Riviera is being successful?

We don't break it down other than the fact that for the first time 17% of our volume is non-handset and this is [WiFi] due to nice contributions in Bluetooth, so I think you could take into account that the majority of that we're talking about the 30 million versus 220 million in the non-baseband, 30 million you haven't seen for a long, long time. And I won't even talk about and touch about the applications that we see today in these tens of millions of devices.

Bluetooth, (inaudible) the pickups really high volume because of what is called Bluetooth low energy and think about all the real devices in home. We have now customers being remote-controlled for TV, for set-top box. We have hearing aid applications, numerous things. There's not any -- of course, smartphone, tablets are all (inaudible) Yaniv just reminded me. So there is not -- there is -- the unique thing about Bluetooth is that every device, almost every device that is portable or niche low-power Bluetooth means that these factors started as a default product. So we go to the customers. For us, we are completely agnostic because we are giving a good solution, hardware and software, and basically we don't care what is the end product.

Great, thank you. Just one last question and you can hang up on me is cash, you announced a new buyback. What is your kind of timing on that in terms of upfront or is it just going to be steady across the 1 million shares and no reason to accelerate here?

You're right. We haven't done a buyback equivalent Q4, but we did initiate a new plan last quarter of a million shares and I think on one hand it's fair to say that it does depend on the stock price and from time to time, we step in and buy. If we look at the last three years, and this is maybe a good comparison, you could fit at an average without primarily in the neighborhood of $20 million plus or minus every year in the last three years.

I believe there's no reason for us to change that and you will continue to be active again from time to time and not any specific heads up, but we will continue to use our cash partially for that and partially to look for other ideas that you have done so successfully with having Bluetooth and WiFi connectivity IP.

Thanks, guys.

Matt Robison, Wunderlich Securities.

Thanks. Yaniv, I will ask you for CapEx depreciation and operating cash flow before we get to the housekeeping stuff. Gideon, did you mention on your new semiconductor license either that was for an LTE application?

Yes.

Can you talk a little bit about the fragmentation in LTE, their different variations and how you are enabling your licensees to address those challenges?

The market is, when it comes to handsets, it's pretty conservative in how to change the (inaudible). So there are two areas that we can expand in the broadband side; one in the public. (inaudible) never know tablet company or chip company in the low end. They are coming; publicly they are coming with wireless communication IP. I heard (inaudible) that they are speaking about one (inaudible) of the public will be with LTE or 3G. The other areas that we are very excited on (inaudible) there will be a lot of entrance in what is called MTC, machine type communication. This is all those LTE (inaudible) for modems that goes to automotive and smart [city] and IoT in general. There is a process in regional loyalty that is called cut zero that will be part of our new 2013 of LTE, LTE advanced and once this is recognized, there would be a lot of companies that will be looking to use this one.

So when it comes to handsets, it's opportunistic and we have our advantages technologywise but because global dosing covenants will likely to move from in-house to outside. But when it comes to public and LTC, we think that there is really a lot of opportunity that's still (inaudible).

Matt, a lot on the technical side, yes, the depreciation like further accrual of $0.2 million on an annual basis (inaudible). The CapEx was $0.65 million and on an annual basis $1.4 million, cash from operating activities $3 million for the quarter and $9 million for the year.

Thank you.

Anil Doradla, William Blair.

This is John Smith on for Anil. Thanks for taking my questions. First one just on the licensing front, as we look out to 2015, could you just give a little bit more color on the pipeline that you are seeing on both the baseband and non-baseband side?

The pipeline looks I would say very solid. We have excelled and we have no products [sold] in the non-baseband side. Vision and connectivity are the hot stuff. At least that's where we see most of the entrants. Audio is -- audio and sensing (inaudible) is also an interesting area. Even in this quarter, we signed a license agreement for our audio with one of the key managed companies. So that will work.

In the broadband side, you have the handset and you have base stations and base stations, we have opportunities and we are optimistic about design wins, coming design wins and when it comes time for -- that's what I said to answer to Matt -- when it comes to handsets, it is opportunistic. The mark -- the standouts are going very fast. People are speaking about LTE advanced release 13. These are now complicated and thinking the question whether the incumbents will keep using the in-house DSP or move to our superior technology or in the business. We don't know.

I also mentioned to Matt two evolving areas in the LTE in general, tablets and the machine type communications. The (inaudible) will expect more entrants, new companies coming. They are looking for technologies and here we are (inaudible) to providing these technologies.

Great, thanks. And then last one from me, Yaniv, with the strength of the dollar recently, could you talk about any hedging strategies that you guys have implemented or just how we should be thinking about the FX impact on expenses as we progress throughout 2015?

Overall, our hedging strategy enabled us to go out six to nine months. This year, there is a big benefit on non-borrower-dominated expenses and I think we are going to see a benefit from that, both in our budget and our numbers and overall plan. Overall expenses due to that will benefit on an annual basis compared to 2014 and we do take that into consideration and the fact that we will benefit from this. With that said, bear in mind that we are trying for expense on the books for six months because we bought that in the beginning of July. Next year, they are going to be on an annual basis. Of course, that helps and we are taking advantage with the hedging of the dollar versus other currencies and lower expenses there.

Great. Thanks, guys. Congrats on the quarter.

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my question. Gideon, it looks like the non-baseband side is clearly starting to pick up for you on the royalty side of the business. If you were to project out two or three quarters, as you exit 2015, what is your expectation for the non-baseband business relative to baseband business on the royalty side, just on a percentage basis?

I cannot go to a percentage basis, but I think I answer the beginning or earlier that in 2015 I will be happy if we are going to see starting of production in this one. We are now sampling our chips in regions, definitely in Bluetooth, WiFi, all the other assemblies. And I want to go -- want them to go into production. Once you go to production, you start to see the pattern and then it will be easy to forecast and also provide color on what's going on versus the business. I think 2015 the ASP (inaudible) 3G wideband CDMA, this is where we are going to see the growth.

If we finalize the last quarter that we just came out of $40 million and compare it to $90 million non-based on units that we had last year, even slightly shy of $9 million, we are already seeing a 33% increase in the non-baseband devices. This is just the beginning of the year, so hopefully that could ramp up even better as we progress.

Got it. Gideon, you've outlined some pretty lofty goals for the non-baseband type in 2018 in terms of total unit volume that you think could potentially be available to you. What are some of the IP spreads you potentially need to add to your existing portfolio to address that? Do you believe you have all of them or do you believe there are still other powerful IPs that you would need to add to your portfolio to address that market successfully?

The 700 million to 900 million units that we said was the existing IP with the guidance that we are signing today, we don't need further IP to reach to this target. If we do something in terms of M&A, it's not (inaudible) additional to take us to another level in this one. 700 million to 900 million units looks like a lot, but we are expecting about 25 billion, 30 billion units in that stage. So we are taking 700 million to 900 million, we are (inaudible), but because we are starting, we want to be noticed at this stage.

Thank you very much, good luck.

Thank you. And as there are no more questions at the present time, I would like to turn the call back over to management for any closing comments.

Sure. Thank you very much, everybody, for joining us today and for your continued interest in and support of CEVA. We will be attending Mobile World Congress in Barcelona March 2 to March 5 during the first quarter and we invite you to join us there. Thank you and goodbye.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.