CEVA Inc (CEVA) 2016 Q1 法說會逐字稿

Good morning and welcome to the CEVA, Inc. first-quarter 2016 earnings conference call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to CEVA's first-quarter 2016 earnings conference call. I am 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 general [qualitative] data. Yaniv will then cover the financial results for the first quarter and provide guidance for the second quarter of 2016. 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 second quarter of 2016; optimism and leveraging market opportunities and machine vision and deep learning technologies; wireless connectivity including Bluetooth Smart; M2M communications, voice processing as well as 3G and LTE; royalty revenue growth; generation of new revenue streams; increase in units shipped by 2018; high confidence in the licensing business for 2016; royalty revenue guidance for the second quarter of 2016; as well as acceleration of strategic investments and continuation of our buyback program.

The risks, uncertainties and instructions include the ability of the CEVA signal processing IPs for smarter connected devices to continue to be strong growth drivers for us; our success in penetrating new markets, specifically non-baseline markets and maintaining our market position in existing markets; 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 would now like to turn the call over to Gideon.

Thank you, Richard, and welcome, everyone. Our first quarter was well executed, delivered record high quarterly revenue of $16.5 million, up 19% compared to the first quarter of 2015. A good licensing environment underscored the growing success of our vision product coupled with royalty revenue from continued market share gains in LTE were the key success factors.

Licensing and other revenues was approximately $8.6 million, an increase of 10% year over year. Licensing included three new customers for our CEVA-XM4 vision DSP, following five XM4 deals in the prior quarter. Royalty revenue was approximately $7.9 million, an increase of 31% year over year.

LTE shipments continue to grow with 35 million shipped units reported in the quarter, which represents substantial progress from last year when we recorded 70 million shipped units for the entire year.

During the first quarter we concluded 11 new licensing deals, six of which were for CEVADSP cores and platform and five were for connectivity products. Of the deals signed three were with first-time customers and 10 were for non-handset-based (inaudible) applications.

Target end product in [those] cases include vision for smartphone, advanced audio for wireless speakers, low-power Bluetooth connectivity for hearing aid earphones and variety of IoT devices. Geographically four of the deals signed were in the US, three in Europe and four in the APAC region.

As we look ahead we continue to experience tangible growth trends that we can capitalize on. These include the increasing reduction of machine vision and [deployment] technologies in automotive, smart phones, advanced camera, drones and virtual reality headsets; the proliferation of wireless connectivity in particular Bluetooth low energy in massive number of devices that are connected as part of the Internet of Things theme; the expansions of cellular technologies (inaudible) low-power machine to machine communication market for home entertainment, home automation, (inaudible) drones in smart cities; and the use of voice as primary machine interface for smart devices and with the cloud.

These are irrefutable opportunities enabling higher [versatile] content for us where we can leverage on our unique specialization and signal processing algorithm and process architecture. By reviewing some of the recent CEVA power product that were launched by our customers it is clear to see how these trends are being realized. Let me highlight a few of our customers' recent orders.

In vision LG electronic is going to use our vision DSP platform in its future mobile devices. It will enable LG to support the most sophisticated and advanced computation photography and vision use cases such as 360 degree photography, video analytics, virtual reality, augmentation reality and ADAS.

The [self CMO] based (inaudible) camera is now in production by a Tier 1 branded camera OEM. Our vision DSP enables substantial improvement in autofocus, noise reduction, no light performance and more.

In audio recent [teardown] reports from Chipworks and iFixit reveal that multiple SKUs of the latest and successful Galaxy S7 and (inaudible) lineup include an always-on voice processor chip from [DSPU] enabled by our audio voice DSP.

In Bluetooth (inaudible) recently launched a complete ultra-low-power platform for the IoT and wearable markets. This platform features a Bluetooth low energy solution enabled by our technology. This solution represents 25% smaller form factor than the closest competing solution.

NXP introduced the QN9080 CEVA enabled ultra low energy chip claiming 40% more energy efficiency versus the closest competitor. NXP has been deploying its chip within wearable device manufacturer where the dominant factors are expected to be healthcare, fitness and wellness.

These production ramps as well as more than 50 CEVA based chips in various design stages will have a growing contribution to our royalty revenue and (inaudible) our near-term objective of 700 to 900 million [relay] chips in 2018. We are confidently adding newer technologies and software that increase the value of our product (inaudible) and will generate new revenue streams for the Company in future years.

Before handing over the call to the Yaniv, let me refer to a few market data points in regard to the cellular market and provide customer updates that reflect our growing strength in this market.

The outlook for 3G and 4G shipment continue to be strong. According to GSMA, LTE penetration worldwide is still only at 14%. In emerging markets 3G and LTE penetration combined is only 40%. Of the 7.3 billion cellular subscribers in the world, 51% still own 2G feature phones.

This low penetration rate of 3G and LTE smartphones presents a sizable opportunity for us for which we can leverage on our diverse product line and experienced customer base. We are set to address all of these opportunities across all different tiers of the market.

Let me share with you some of the recent customer announcements in this regard. At Global World Congress in February China Mobile announced its business target to sell 330 million LTE phones in 2016. Together with two of our customers, (inaudible) it announced that it will offer LTE advanced smartphones with (inaudible) feature at a price point of $50.

Spreadtrum announced that its SC9830i LTE smartphone platform has been adopted by Samsung for the Galaxy J3. This phone carries an attractive value proposition for emerging markets where Samsung is holding a leading the marketshare of 22%.

Another Spreadtrum LTE SOC, the SC9830, has been adopted for multiple low-cost smartphones for India. This includes Intex Cloud 4G Smart, the Lava A88, Zorro [era] 4G and InFocus Bingo 21. All these handsets sell for less than $80 and include support for (inaudible).

Also Spreadtrum announced that its first LTE chips are targeting medium and premium smartphones, the SC9860 is now in lot production at TSMC, 16 nanometer FinFET (inaudible). Assuming (inaudible) Spreadtrum has the advantage over MediaTek in these advanced nodes.

Samsung announced that the Lotus Exynos 8890 manufactured with 14 nanometer FinFET technology, our related Galaxy assembling and the s7 edge smartphone. The Exynos 8890 integrates the most advanced LTE cut (inaudible) modem offering downlink speed of 600 megabits and uplink speed of [100] megabits per second.

Also Samsung announced the newest member of the CEVA powered Exynos 7 lineup, the 7870. This (inaudible) chipset is designed for next-generation new brand smartphone. Samsung plans to build up its position in the midrange tier by employing 14 nanometer FinFET process which has been reserved only for premier segments thus far.

Intel announced its latest slim modem chip XMM7480, which can deliver up to 450 megabits per second. This modem platform is expected to be in production in the first half of 2017.

In conclusion, we are successfully combining strategic focus on our core cellular business together with product diversification into exciting areas of vision, voice processing, connectivity and machine to machine. Together with our customers we can bring value to every market deploying these technologies and across all segments.

We will continue to relentlessly pursue every opportunity for growth as we leverage our leading position in signal processing IP for smart and connected devices. With that said, let me turn the call over to Yaniv to discuss financials and guidance.

Thank you, Gideon. I will start by reviewing the results of our operations for the first quarter 2016. Revenue for the first quarter was $16.5 million, an all-time record high and slightly better than the midrange of our guidance, primarily due to strong licensing revenue.

The revenue breakdown is as follows. Licensing and related revenue was $8.6 million, an all-time record high, reflecting [62%] of total revenues. This is 10% higher as compared to the comparable quarter of 2015.

Royalty revenue was $7.9 million reflecting 48% of total revenues. An impressive increase of 31% on a year-over-year basis and the fifth successful quarter that we have delivered year-over-year royalty growth.

Quarterly gross margin was 90% on US GAAP basis and 91% on non-GAAP basis. The non-GAAP quarterly gross margin excludes approximately $60,000 of equity-based compensation expenses.

Total operating expenses for the quarter was $13.1 million, at the mid range of our guidance. OpEx also includes an aggregated equity-based compensation expense of approximately $1.4 million and $0.3 million for the amortization of acquired intangibles of RivieraWaves.

Our total operating expenses for the first quarter excluding equity-based compensation and amortization were $11.3 million, also in the midrange of our guidance.

US GAAP net income for the quarter increased 270% from $0.5 million to $1.8 million in the first quarters of 2015 and 2016 respectively. The (inaudible) EPS increased 350% from $0.02 to $0.09 for the same periods.

Non-GAAP net income and diluted EPS for the first quarter of 2016 more than doubled year over year and increased by 115% and 113% to $3.5 million and $0.17 respectively. Our non-GAAP net income and diluted EPS for the first quarter of 2015 were $1.6 million and $0.08 respectively.

These figures for the first quarters of 2016 and 2015 exclude equity-based compensation expenses of $1.5 million and $0.8 million respectively and the impact of amortization of acquired intangibles of RivieraWaves net of taxes of $0.2 million and $0.3 million respectively.

Other related data -- shipped units by CEVA licensees during the first quarter of 2016 were $230 million, down 9% sequentially and 1% from the first-quarter shipments of 2015. Of the 230 million units shipped, 185 million units, or 80%, were for baseband chips reflecting a sequential [increase] of [9%] from 202 million units of baseband shipped and a decrease of 8% from 201 million shipped units a year ago.

In non-baseband volume shipments decreased 10% sequentially, but increased 42% on a year-over-year basis. The decrease in the quarter can be attributed to gaming console and a decrease in shipment of old Bluetooth product line.

The quarterly handset baseband royalty ASP was up 11% sequentially and 47% year-over-year due to a growing product mix of LTE devices. Our overall corporate blended royalty ASP increased 7% sequentially and 32% year-over-year.

As for the balance sheet items, as of March 31, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were approximately $137 million. In the first quarter we paid approximately $1 million as part of the prior contractual commitments in acquiring new [VLAs].

Our DSOs for the first quarter was 37 days, still below the normal level, but up from the fourth-quarter level of 23 days.

Regarding our buyback progress -- We repurchased approximately 180,000 shares during the first quarter at an average price of $19 per share and for approximately $3.4 million. We plan to continue with stock buyback in 2016 and look for other strategic investments that can reinforce our market leadership and ESP and connectivity IPs.

During the last quarter we generated $0.2 million of operating cash flow, our depreciation was $0.3 million, and purchased a fixed asset with $0.4 million. At the end of March our headcount was 263 people of which 205 are engineers.

Now for the guidance -- on licensing we expect a continued strong environment across the entire range of products we offer. On (inaudible), as Gideon expanded on earlier, we are experiencing growing momentum in the LTE, smartphone market across all price tiers, from low cost through premium models.

This strong momentum in LTE will enable us to more than offset the holiday -- the post holiday season weakness typically experienced across the semiconductor and consumer electronic industry in the first quarter of each year. As a result we expect royalty revenue for the second quarter to be substantially higher, approximately 20% increase on a sequential basis and over 60% increase on an annual basis.

Our guidance for the second quarter 2016 -- revenue for the second quarter is expected to be in the range of $16.5 million to $17.5 million. Gross margin is expected to be approximately 91% on GAAP and 92% on non-GAAP basis excluding equity-based compensation expenses.

Our overall expenses should be quite similar to the expense levels we just reported for the first quarter. US GAAP operating expenses are expected to be in the range of $12.8 million to $14.8 million. Of our anticipated total OpEx for the second quarter $1.6 million is expected to be attributed to equity-based compensation expenses and $0.3 million to amortization of acquired intangibles.

So our non-GAAP OpEx is expected to be in the range of $10.9 million to $11.9 million. Net interest income is expected to be approximately $350,000 for the quarter, tax rate for non-GAAP at approximately 14%, share count for the quarter approximately 21.7 million shares.

And that brings us to the EPS, US GAAP fully diluted earnings per share are expected to be in the range of $0.09 to $0.11. And for non-GAAP EPS forecast, excluding an aggregate $1.4 million of equity-based compensation expenses net of taxes and amortization expenses of $0.3 million is expected to be in the range of $0.17 to $0.19 per share. Analise, you can now open the Q&A session, please.

(Operator Instructions). Matt Ramsay, Canaccord Genuity.

I guess a couple from me. I guess first off, congratulations on the strong traction in LTE broadly. Gideon, I wanted to ask if you think going on in the industry and maybe you could expand a little bit on the basis of the strength of the sequential guidance and LTE units. Things of particular interest to myself are expanding use of Samsung's Exynos program through the mid-tier of their portfolio.

And also maybe you could talk to us a little bit -- we continue to hear more and more about fixed mode LTE being important in China. Not just with Spreadtrum, your primary customer, but also I know you guys have a bit of CDMA business with MediaTek and what -- how much those things are contributing to the guidance strength? Thanks.

Okay, so, in terms of the mid range of Samsung, we cannot really elaborate much about this. The only thing that I can say that we are well positioned there at Samsung across all tiers, we are covered in the high end, we are in the mid range and I would say the majority of the low end side, which is more a -- not an in-house modem, but coming from outside (inaudible) is by us.

And I mentioned the J3 Galaxy (inaudible) which is a very successful product in the emerging markets which -- from Spreadtrum. So that is one thing.

The other thing is the six-month drive, that is what we are hearing as well. I should say almost all of our customers have the CDMA which is the six mode that is coming from the customer. And it looks like problem solved I would say.

Got it, got it. A couple other things to dig into and, Yaniv, maybe I will ask you to address this. You guys had talked about a 20% to 40% range in royalty growth for the year.

I guess given all the puts and takes of I guess the new data that you see out there, maybe you could talk to us a little bit about where you guys see yourself within that guidance range as you move through the year. Thanks.

Sure and good morning. So it is a little bit early still in the year, just the first quarter is behind us and we did receive most, not all, but most of the royalty reports. And we see the strength that Gideon mentioned earlier: continued ramp up in LTE.

The guidance we gave for next quarter of 20% sequential growth and more than 60% year-over-year growth, takes into account probably just shy of 50 million, 5-0 million LTE units shipped in Q1 which we will report in Q2.

So with that early start and a pretty strong start on the year I would say we are probably more confident or feeling a bit better maybe on the towards the higher end of the guidance, but we are still within the 20% to 40%, but we have much more -- half of the year with royalty reports already behind us.

And we feel comfortable that even the high end maybe is reachable. That is what we would say today. Let's take another quarter to follow those trends and then we will have a clear picture.

Got it. No, that is really helpful. And then the last I guess question from me and I will get back in the queue is a lot of strength in recent quarters in licensing, particularly non-baseband applications. Not just Bluetooth but I think things that would carry a higher royalty per-unit -- longer-term vision processors, etc.

Maybe you guys could give us a little bit of more color about how you see those things ramping into royalty revenue over the next year or two to get toward the 700 million to 900 million goal by 2018. The shape of that curve would be really helpful because the licensing strength has been apparent. Thanks.

Yes, Matthew, it is Gideon. I mentioned in my prepared remarks a few examples that is aligned with the earliest that we are focusing. And we got the first report for the first vision product and then we heard this is going to be a successful camera. We have the Bluetooth, we have the audio that is now in millions of volumes.

So the exact care with how this will shape up (inaudible) the [218], 700 million to 900 million, we don't know exactly. We see that we have 50 designs running, they are close to take -- close to take off or I would say 60% for the takeoff, it could be a hockey stick, it could be a (inaudible). We will see. I think at probably the beginning of [2007] we are seeing some more sustainability here and predictability.

Well, thank you very much. Congrats again.

Joseph Wolf, Barclays.

I wanted to follow up with the licensing expectations and the momentum. If I look at the guidance it feels like the midpoint is about $8 million and so just a couple of questions. First of all, how much visibility do you have with the licensing? Because I take you through the year is really ad hoc on a quarterly basis.

And if I look at this quarter you had three new customers among the 11 design wins, were all three of those non-handset? And then finally, if you look at the overall licensing and the dominant proportion of that being non-handset is there a handset regeneration -- or a next-generation of handsets that it's going to refresh that and boost the licensing above trend at some point this year or next?

Joseph, let me try to address your several questions. And Yaniv will jump in with other inputs. First of all, when it comes to cellular, indeed we had one baseband (inaudible) out of the 11, 10 were non-baseband.

Regarding recycle, it can come and will come from three vectors. One is there are newcomers into the handset space, especially in China. Now the opportunity, the size of the market is enormous and they are looking to add -- and there are companies that feel that they can do an LTE in phones and you see some kind of a joint venture or merger between companies.

So I think last quarter -- this quarter we have a Company that it is basically a newcomer into the space. That is one thing. The other area -- the other vector of growth, and this is also I mentioned in the prepared remarks is the machine to machine.

If you had the time to -- if you were in the recent NWC, this was the highlight of the shows. The 3G could be the standard body for LTE getting direct together and they are going to stand off a low (inaudible) and machine to machine communication. And the size of this market is -- we are very (inaudible), but it is 20, 20, 21 we speak about billion of (inaudible).

And the (inaudible) of average is more important is the cycle of 5G. There are a lot of companies, Intel is very verbal about it, they are going to into the 5G now. And the challenges are significantly higher. And we in February announced a DSP for the 5G and we are starting to work in the companies right away -- not just in handsets but also in the base stations. So these are the cellular opportunities.

And regards the number of last couple of quarters were extremely strong, we went for a while whether it was Q3 of last year with a similar figure this quarter, it was extremely high, it was the highest we ever had.

But I think what we set maybe a year or two years ago the (inaudible) adding other new connectivity IPs that we were comfortable with a $7 million to $8 million-type per quarter. $8 million, $8.6 million or $8.5 million is much higher than that and whenever we could achieve that we are happy to report it.

But in general $7 million to $8 million is our normal type of comfort zone as we view, significantly higher than $5.5 million, but it was in the past for many years. And I think we are comfortable. If we do better we will see it in the numbers. If we are anywhere in that range we are still comfortable that these new licensing deals will potentially generate more royalties in the future.

Okay and just a quick one on the non -- another question on the non-baseband business. If we look at the total units for 2015, about $120 million in the Bluetooth related and $46 million in the other. Are those two different growth rates what you can be comfortable with in those two end markets right now? Or is it too early to talk about growth for the year for those two different parts of that business?

I think it is a bit early to put a figure or a model just because it is only starting to ramp up. If you look at the annual base as we said last year, we're overall up 230% on the entire non-baseband and the run rate exiting the year was $200 million, [$50] million at the time.

If we add some of these newcomers like we mentioned, DSPG and the camera that is in the market and shipping already, they are all starting to ramp up. It is still in the millions of units, but as soon as those start getting many other examples and Bluetooth in the tens of millions, then those numbers could start being much more significant on a quarterly basis and reach 100 million or more million units in a year.

I think we need to get -- as Gideon said earlier, we need to get high in a few companies to start these productions and we are seeing it already. The more we have the better visibility we will have on the numbers. We think that the numbers will pick up significantly in the second half of the year.

Perfect, thank you.

Gary Mobley, Benchmark.

I had just a couple questions on the royalty trends. Could you talk specifically about the trends that you expect to see in non-baseband royalty units in Q2? If I am not mistaken the numbers might work out to where you are showing maybe just a slight increase in non-baseband in Q2?

Q2 reporting or Q2 shipment?

What is your license fee shipped in Q1 that will impact your Q2 non-baseband royalty units?

Okay, so Q1 I would say was anemic in terms of the seasonality (multiple speakers) in terms of the seasonality. We did have companies like DSPG and another company in the camera that started to ship in Q1. But that is a new product and they are tied to introduction of new product.

So overall it is in line with people. Q1 was very weak in the consumer product. Going forward we don't have any reason to believe that it will not go up again -- go up again or follow the typical seasonality that we know from last year. But this will go up because we have new players.

Okay.

Even if you look specifically at the Bluetooth market in the public companies, I talked about it in the first quarter, the numbers were down for strange reason -- no real reason other than just seasonality. We were down quite significant, this is what we are reporting now in Q2. Hopefully the Q2 shipments will be up and then we will be up in Q3 guidance for non-baseband. I think that is the plan.

Okay, all right. And if I am not mistaken, you're forecasting roughly a 57% sequential increase in LTE royalty units in Q2. Could you talk about the diversity of that growth? In the early days, let's call it 2015, in your LTE unit ramp I think it was heavily influenced by Samsung. Is that still the case or are you seeing much more contribution from licensees such as Leadcore and Spreadtrum?

That is the point, we are nicely spread across different customers and different deals of the companies. We have franchise models, we have premium models, we have mid-range models, we have low end and we have very low end. And this is just when it comes to LTE -- we are always the place because we have different product for all these tiers, different tiers.

I think it is a combination.

All right. And you are guiding OpEx to be roughly flat sequentially and that takes into consideration that you sort of stepped up your OpEx investment as indicated in your overall 2016 guide that you provided last quarter in OpEx.

What is the temptation, now that you might be running at the high end of your royalty growth guide, to further increase that OpEx in the second half of the year to take advantage of some potential new market opportunities?

We are -- our considered -- we are making a final consideration in terms of increasing OpEx. Our tendency is to build (inaudible) investment. I don't -- right now we don't have any plans beyond what we shared (inaudible) where we think we are well staffed to meet our plans for the years. We have other thoughts that we'll explore it and gradually invest on goals based on the opportunity we see.

Okay (multiple speakers).

But after that -- Gary, so after that right now in the model and the plan, other than if something new comes along, as Gideon explained, we don't see an increase of OpEx from these levels in the second half of the year.

Okay. Congrats on the good start to the year. Thanks, guys.

Matt Robison, Wunderlich.

Congratulations. You probably gave it, so I apologize. Can you give the LTE volume for the quarter, March quarter that you recognizes (multiple speakers).

35 million units sold in Q4 which we reported in Q1.

Okay. You mentioned getting into more mass-market driving this big sequential increase you expect for second quarter. Is it -- and we have talked about China for a long time. But we haven't really seen LTE in China start to be a driver. Is it now a driver? Is it happening now or are you looking at royalties still from the same kind of customers that have been driving it the last few quarters?

China is one of the drivers, there are two more drivers, I'll get back in a second to why China is a driver. And we have two more drivers, one is market share or share gain in the premium side of the phones and the growth of (inaudible) in India.

Because even though the infrastructure in India is not LTE ready today, all the phones, all the smartphone chips to India are LTE hardware. That's (inaudible).

Now going back to China, there is some renewed interest in China. It was stagnating, but in the last quarter we see improvement -- especially in the mid-high-end, some of it relates to subsidies where the operators are going (inaudible) and we are part of this area. Qualcomm spoke about it, maybe (inaudible) speaking about it. So China is again a growing market.

And Matt, one would thing if you have missed, for Q1 shipments, which we report in Q2, we talked about just shy of 50 million LTE devices up from 35 million which we just reported.

Well, I wanted to I guess put a finer point on it. When you look at that 50 million or just shy of 50 million, is it TD LTE that is really starting to drive it and the sort of specialized LTE phones for China plus those in India or is that in the outlook further in the year?

No, it is not TD LTE, I would say it is more the 5 mode and it is a really dynamic market. People are now moving fast to 6 mode and these are the phones. The 3 mode -- we didn't make a full analysis of the reported figure. I suspect that it is not that big now.

Okay. So how do you -- where do you think we are going to be when we start thinking about shipments in the second and third quarter, same kind of drivers? Do you think those are going to go for multiple quarters or do you see something different happening later in the year?

The smartphone market is very dynamic. Since our (inaudible) last year just for example Xiaomi was number two in China, now I think they are even not (inaudible) struggling in China. You're not exactly sure what is going to happen. But I look in (inaudible) with fundamentals. And the fundamentals allow us to be -- to [present] all over the place.

The fact that India -- India is sustainable, they need smartphones, they need penetration, they need the LTE (inaudible) so this I believe continue. I think when it comes in the high-end, still the consumer has to decide how to accept all those payment forms, but it looks like in good shape.

And in the mid-range we will see a lot of things coming and we have all those -- our customers being able to operate, which was not the case two years ago and with half to last year. Now they are rolling in full gear.

Thanks a lot.

(Operator Instructions). Daniel Amir, Ladenburg.

Congratulations on a good quarter. I guess where you stand today compared to where you were three months ago and now with this guidance -- I mean has anything positively surprised you or negatively surprised you in terms of the various business segments in terms of the growth here?

(Inaudible) it's Gideon. The guidance that we are giving, the LTE growth part, it was I would say a quarter earlier that we anticipated. But we knew it's going to happen. And we can only be happy and proud.

And the way, Danny, if you look at the last five years, Q2 was always down in the last five years. This was the first time after a long time that we are breaking that. And this is because of the -- mainly because of the LTE ramp-up.

We don't have exactly the crystal ball when it happened and what SKU is successful. But as Gideon explained, we have the infrastructure, we have the customer base and that competes with the Qualcomm's in a sense and the MediaTek's of the world. And as they do better these next couple of years and quarters, then it is a big benefit for us.

Okay. And then in terms of uses of cash, you kind of mentioned I guess you have the stock buyback and acquisition strategy. I mean can you just discuss what you are looking a bit in the areas of acquisitions that you need to fill or the focus is really at the moment in terms of more stock buyback?

No, it is all of the above. I mean we have a plan, a program for stock buyback and will pursue it. In terms of MMA, we're constantly consistently looking for all sorts of prospects that fits to our strategy. I personally believe and my tendency is to try to see things organically to develop things.

We are a very good team that can adapt the vision, for example, which is substantial. Technology pace, we have developed it in-house. Our technology base station and base station is something that we develop in-house. So we can do a lot of things in house based on the opportunity we see. So all of the above in terms of use of cash.

Okay, great. Thanks a lot.

Lee Meyer, Lord Abbett.

Thank you for taking my call, my question and congratulations on a great quarter. I have two questions. The first one is there seems to be a trend ongoing in smartphones at cameras move towards dual cameras which have some new functionality. And I've noticed that amongst your competitors, particularly MediaTek, they have been adding new image processor sort of I guess DSPs to handle a lot of this enhanced functionality.

The move to dual cameras, does this represent an opportunity for CEVA? My limited understanding is that most of that happens in the application processor as opposed to the baseband. Does that represent a challenge for you, for your image processor to cross over to the application processor? And is that an opportunity for you? That is the first question?

Okay, I'll give you the opportunity, you put it right. The dual (inaudible) is an area where we see smartphone manufacturers are looking to improve the quality of the video and also on the still side of pictures.

This is not a baseband or repeat play, it is more a dedicated vision processor like we are offering. And one of the value add and one of the benchmarks that we are showing to customers is how to use our vision processor to do -- to support a dual camera.

There is significant processing that you need to do in order to support this capability. But we have a product line that is not -- it is a separate product line, not the baseband product line, that we call it the vision product line by the way which is very successful. Last quarter we had two out of the three design wins came from smartphones on the same use case that you are referring.

Okay, so last quarter two of the three vision licenses you signed were for smartphones for this use case?

One of the use cases, they renewed it. It is not the one (inaudible) platform, you can use it, it is a processor, you can use it for other features. But one of the use cases would be dual camera, yes.

Okay, okay very good. The other question I have is in some of the discussions I have had with the Company you've talked about a sort of emerging base station opportunity which could potentially be quite large for you in the future. Can you give us any update on what you are doing there and why that opportunity is large for you?

Yes, this is a very -- look, what is even important piece in our technology. We have dedicated product line. We have two large OEM customers known in the space that use our technology and deploy it already. And we expect to see royalty coming from this substantial market, they are going to use it for 5G as early as 2018.

Let me add to that (inaudible) last year Q4 we had a pretty significant comprehensive deal with one of the two recurring customers that took a next-generation of our DSP for base station. And this quarter they came back for another piece of stuff that we will fit on top of that.

So, we are seeing constant -- and this is a one of the Q1 deals. We are seeing constant licensing momentum here. And as Gideon said, we should be seeing a pretty significant ramp up end of 2017 or more of 2018, pretty significant numbers and dollars coming out of that market.

Are those numbers included in your baseband or non baseband units? And are they folded into the LTE portion of that or the 3G portion of that or where were they accounted for?

Yes, good question. So when we call baseband we also add a word, handset baseband. So all of these numbers that we talked about now 35 million or 50 million for LTE, these are all modems only for handset baseband.

When we moved to small cell, the macrocell base station or audio device or the vision for cameras that you mentioned, these will all fall in with non-baseband, non-handset baseband devices. And if we have something specific other than base stations I am sure we'll give it the right color so you can follow those trends as well.

Okay, thank you very much.

This concludes our question-and-answer session. I would like to turn the conference over to Richard Kingston for any closing remarks.

Thank you again for joining us today and for your continued interest and support and CEVA. We will be attending the benchmark Company one on one investor conference in Milwaukee on June 2 and we invite you to join us there. For further investor information and a calendar of events that we will be attending, please visit our Investors website at HTTPinvestors. CEVA-DSP.com. Thank you, and goodbye.

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