CEVA Inc (CEVA) 2018 Q3 法說會逐字稿

Good morning, and welcome to the CEVA Inc. Third Quarter 2018 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 and Public Relations. Please go ahead, sir.

Thank you, Rocco, and good morning, everyone, and welcome to CEVA's Third Quarter 2018 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 third quarter and provide general qualitative data. Yaniv will then cover the financial results for the third quarter and also provide qualitative data for the remainder of 2018.

I'll start with the forward-looking statement. Please note 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: our financial guidance for the fourth quarter and full year 2018; optimism about a strong momentum and CEVA's ability to capitalize on trends associated with wireless-based connectivity and NB-IoT product; a 5G healthy licensing environment and demand for CEVA's products; optimism about sustained growth in non-handset baseband product lines and customer production ramp-ups; and positive forecasts from IC Insights and Ericsson Mobility.

For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the ability of CEVA's signal processing IPs for smarter-connected devices to continue to be strong growth drivers for us; the traction with edge technology for AI; our success in penetrating new markets and maintaining our position in existing markets; the ability of new products incorporating our technologies to achieve market acceptance and offset the maturity of the handset market; the speed and extent of the expansion of the 5G network and wireless connectivity, artificial intelligence, LTE IoT and the IoT space generally; our ability to execute more broad portfolio license agreements; and customer ramp-ups and schedules that impact on royalty revenue.

CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. In addition to the financial results prepared in accordance with the generally accepted accounting principles or GAAP, we will also present certain non-GAAP financial measures today.

CEVA's management believes that in addition to using GAAP results in evaluating our business, it is also useful to review results using certain non-GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the earnings press release issued today.

A copy of today's press release for the third quarter ending September 30, 2018, and the related financial tables and management commentary, which were included in our current report on Form 8-K filed today, also can be found on the Investor Relations portion of our website shortly.

Before handing the call over to Gideon, I would like to remind you that CEVA adopted the new revenue accounting standard known as ASC 606 as of January 1, 2018. Under the new standards, our royalty revenue represents what our customers shipped during the third quarter of 2018 or our best estimates for such shipments. The numbers stated on this call for the third quarter are based on ASC 606, unless otherwise stated. However, as our Q3 2018 financial results are not directly comparable to our Q3 2017 financial results, which were reported under the old revenue recognition accounting standard known as ASC 605, we will also provide you today our Q3 2018 financial results as reported under ASC 605 to allow for an apples-to-apples comparison on a year-over-year basis. We will have this dual reporting approach throughout 2018 as required by the Financial Accounting Standards Board.

With all of that said, I will now hand the call over to Gideon.

Thank you, Richard, and welcome, everyone. Our third quarter revenue came in line with our expectations, demonstrating strong royalty revenue recovery and solid execution in licensing.

Total revenue was $21.4 million, of which licensing and related revenue was $9.8 million and royalty revenue was $11.6 million. Royalty revenue reflected strong sequential growth, with a step-up in contribution from the wide deployment of our advanced DSP technology within recently launched flagship smartphones and the continued growth of shipments in the non-handset category as new and existing customers roll out new product into the market.

The strength of our technology portfolio led to another quarter of sustained licensing revenue with 13 agreements executed across multiple end markets, included -- including in the [2] strategic ADAS space. China, in particular, showed good dynamics with 9 agreements out the 13 deals concluded in the quarter with vibrant Chinese semiconductor companies targeting variety of IoT devices for consumer and industrial applications.

According to recent analysis from research firm IC Insights, China-based fabless IC firms are expected to account for 19% of the global total pure-play foundry sales in 2018, up from 9% in 2016 and from about 13% last year. We are experiencing, in particular, strong demand for our WiFi, Bluetooth and cellular products as wireless IP expertise is scarce in China, a must-have for IoT products.

Let me take the next few minutes to provide you with foresight on licensing landscape, elaborating in particular on the wireless space. The opportunity -- opportunities and the customer engagements we have experienced are authentic indicators of product trends and the precursor for new royalty revenue streams.

According to the latest Ericsson Mobility Report, short-range connected devices are expected to increase from 6 billion in 2017 to 17 billion in 2023, and long-range IoT from 0.6 billion to 2.4 billion, a total installed base of 20 billion by 2023. Short-range IoT devices are primarily smart home and office products using Bluetooth, WiFi and the like. Long-range IoT includes devices that connected to the Internet via cellular IoT, standards such as NB-IoT.

CEVA is a prime supplier of wireless connectivity technologies for IoT. Our offering is comprehensive, vertically integrated and include both short-range and cellular technologies. We are benefiting currently from the proliferation of new consumer-oriented wirelessly connected products like headphones, smart watches, smart speakers and a range of wirelessly connected home appliances and home entertainment devices.

The scope of short-range wireless connectivity extends beyond consumer and peer-to-peer communication to indoor navigation, asset tracking and control, which almost doubles the total addressable market.

With our NB-IoT solution, our market reach extends to emerging verticals such as automotive, smart cities, industrial, driven by national initiatives like Industry 4.0 and China MIC2025. To foster the NB-IoT opportunity and development, we launched recently our second-generation full solution, the Dragonfly NB2. Dragonfly NB2 complies with the latest 3GPP standard release 14 and is software upgradable to 5G. It incorporates in 1 platform all the different disciplines required for NB-IoT solution, including our latest CEVA-X1 DSP, hardware acceleration blocks, GPS, protocol stack and software and RF IP.

The Dragonfly NB2 platform reduces dramatically the entry barriers for companies looking to get into the cellular IoT space, enabling them to focus on their excellence rather than develop cellular competencies, which are difficult.

As for 5G, the scale of activities of operators in equipment deployment and launches of services significantly expedited in the last few months, indicating a meaningful transition pace similar to how 4G was. The FCC published recently a 5G action plan, with the mission to place the U.S. at the forefront of developing and deploying 5G technology. Dubbed as 5G FAST Plan, it contains policies to streamline spectrum and infrastructure build-out, the key hurdles for fast deployment.

In its recent earnings call, Nokia's CEO said that they see excellent order intake, reflecting growing market demand which implies a 30% growth in backlog compared to the beginning of the year, and also mentioned that AT&T selected Nokia as one of their 5G suppliers. He also commented that the deployment of the cost-efficient ReefShark chip, enabled by our DSP platform, will pave the way for higher operating margins for Nokia networks.

ZTE, using our technology, achieved successful test results from the third phase of national testing. The third phase is seen as the last step before ZTE can proceed with its 5G commercialization plan. The China Ministry of Industry and Information Technology, MIIT, commented that 5G devices will be ready for commercial use in China in 2019.

As we stated in prior calls, CEVA is in the unique position to capitalize on 5G, both at the base station RAN and within the devices. 5G revolutionizes the network architecture and design. It requires much denser base stations with as many as 4 to 8x more cell towers per square kilometer in comparison to 4G.

On the device side, 5G enables new usage models in car, manufacturing, health and more. We are experiencing a solid licensing pipeline composed of both incumbents that did not use our technologies for LTE, and newcomers that can make use of cellular technology to reduce time to market.

In summary, the third quarter financial results and business execution reflect a healthy demand for our product and successful production ramps by our customers. We continue to expand our design wins and pipeline, capitalizing on the rapid proliferation of wirelessly connected IoT devices, in particular in China. These wins are across multiple verticals and pose high volume-based royalty opportunities. Together with our 5G end-to-end offering, we are a one-stop shop to any newcomer or incumbent for wireless technology.

Our sensing and AI technologies for computer vision and voice are complementary to our wireless technologies and provides us with increased content and cross-sell opportunities.

On royalties, we returned to sequential growth due to the successful launch of the latest smartphone product line from prominent OEM and the sustained growth in shipments within our non-handset baseband product lines.

With that said, let me turn the call over to Yaniv to discuss our financials and guidance.

Thank you, Gideon. I'll start by reviewing the results of our operations for the third quarter of 2018.

Revenue for the third quarter based on ASC 606 was $21.4 million. The revenue breakdown is as follows: licensing and related revenue was $9.8 million, reflecting 46% of our total revenue, 30% lower as compared to the third quarter 2017's all-time record high. Royalty revenue was $11.6 million, reflecting 54% of our total revenue, a decrease of 8% on a year-over-year basis compared to $12.6 million for the third quarter actual shipment that we reported in the fourth quarter of 2017, following the revenue rules under ASC 606. As a reminder, the $12.6 million record high included a one-time catch-up fee of $0.9 million due to a customer audit.

Quarterly gross margins were 91% on U.S. GAAP basis and 92% on non-GAAP basis. Our total operating expenses for the quarter were below our guidance at $17.3 million due to lower SG&A costs associated with marketing activities and comp-related provisions. OpEx included an aggregate equity-based compensation expense of approximately $2.3 million and $0.2 million for the amortization of acquired intangibles of RivieraWaves. Our total operating expenses for the third quarter, excluding these, were $14.7 million, also below our guidance.

U.S. GAAP net income and diluted EPS for the third quarter were $2.5 million and $0.11, respectively. Our non-GAAP net income and diluted EPS for the third quarter of 2018 were $5.2 million and $0.23, respectively.

Other related data. Shipped units by CEVA licensees during the third quarter 2018 were approximately 263 million, up 19% sequentially and down 8% from Q3 2017 actual shipments reported in the fourth quarter of 2017.

Of the approximately 266 -- 263 million units shipped, 165 million units or 63% were for handset baseband chips, reflecting a 24% sequential increase and a 19% decline on a year-over-year basis. In non-baseband, volume shipments reached another record of 98 million units, up 11% sequentially and 22% on a year-over-year basis as Bluetooth shipments continue to be strong and broke another record with 83 million units shipped in the quarter.

As for the balance sheet items, as of September 30, 2018, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were approximately $167 million. We continued our active buyback program and repurchased about 216,000 shares during the quarter for approximately $6.3 million. During the second quarter, our Board of Directors approved the expansion of the existing buyback plan. And as of September 30, we had approximately 0.5 million shares available for repurchase.

Last, our adjusted ASC 606 DSOs for the third quarter 2018 continued to be low at 41 days from prior quarter level of 48 days. During the third quarter, we generated $0.3 million of net cash from operations. The depreciation was $0.7 million and purchase of fixed assets was $0.7 million. At the end of September, our headcount was 329 people, of which 266 were engineers.

Now for the guidance for the rest of the year. On royalties, as we forecasted earlier, an even slightly better result. We managed to record an impressive 56% sequential growth in the third quarter and believe that the fourth quarter royalty revenue is estimated to be similar or slightly better. On licensing and related revenue, we continue to experience healthy demand for our products and will keep the same pace quarterly target -- past quarterly target as we demonstrated over the last 2 years.

Specifically for the fourth quarter 2018, gross margin is expected to be similar to the third quarter level, with approximately 91% on GAAP and 92% on non-GAAP basis. Overall OpEx is expected to be lower than the third quarter level and lower than the first 2 quarters of the year and is anticipated to be in the range of $16.4 million to $17.4 million. As anticipated, OpEx for the fourth quarter, $2.4 million is expected to be attributable to equity-based compensation expenses and $0.2 million for the amortization of acquired intangibles.

On a non-GAAP, OpEx is also expected to be lower than prior quarter levels, in the range of $13.8 million to $14.8 million. Net interest income is expected to be approximately $0.8 million. Tax rate for the fourth quarter, approximately 17% on GAAP basis and 11% on non-GAAP basis. Share count for the fourth quarter is expected to be in a similar level to the third quarter number.

And operator, you could now open the floor for the Q&A session, please.

(Operator Instructions) Today's first question comes from Gary Mobley of Benchmark.

Wanted to start with a question about the China mobile handset market. What's your sense of your market position in China through your largest licensed relationship, in particular with Spreadtrum?

So Gary, when it comes to China in the last 2 or 3 quarters, we iterated -- we said that there is softness within this specific customer. This is not -- although we saw improvement in this quarter, the target market for this customer is the low tier in China and India. And so far, we see some -- I mean the bottom is over, behind us. But we would like to see much better.

Okay. My sense is that you saw a nice contribution or at least some contribution from 5G cellular base station SoCs in your royalty contribution [and] EBITDA. Can you share with us what the unit contribution was, what your non-mobile handset baseband royalty unit rate was in the quarter with that contribution and what your outlook is for contribution from your 2 main 5G base station SoC licensees?

So about this here, let me have a minute to comment. About -- you don't see -- we don't see today a meaningful 5G base station royalty. As I said, when it comes to ZTE, they passed a very advanced stage, which will allow them to start commercializing, mainly installing the base station in a more substantial way. Up till now, they were investing in the deployment, I talked about this, Nokia. And as we said and they are saying, the ReefShark, and this is where our entry point there is a key for their operating margins there. And so far, they are not installing. It not just depends on the product. It depends, as you know, on many parameters, operator deployment. To me, it looks like more 2019, you start seeing a few things and then to more extent 2020.

Okay. And with respect to your license pipeline, can you share with us what has been recently made generally available in your new product development such as NeuPro? Is that generally available? And if not, are you able to recognize some license revenue? And I noticed that your accrued revenue, $16.5 million, was up substantially on a quarter-over-quarter basis. Did that have the -- is that an indication of the license revenue backlog?

Let me start with a technicality. It's no -- not necessarily. Two things increased it. One is higher royalties because of the new rules. All the $11.6 million that we recorded were all recorded after the quarter and we did not invoice our customers in September but in late October and November, and this is why they include, so that number, of course, is higher than the first 2 quarters of the year. And on top of that, we have a few deals that were very back-end loaded and we only invoice in October after the quarter ended. So this was just the technical number. It will continue to follow with us on the royalty side. And the likely thing is just a question with the invoices, the timing of the invoices. And in this case, it was just a bit of a back-end loaded quarter from that aspect. So it has nothing to do with the newer technology that Gideon mentioned in the prepared remarks. And we are developing them, we're offering them and we have licensed already a few agreements around those technologies and we continue to be quite excited about the opportunities, both on the licensing and later on, on the royalty side.

And your next question comes from Mike Walkley of Canaccord Genuity.

My question is just on the Q4 for kind of flattish royalty growth. Can you kind of walk us through your thought process and the puts and takes with Nokia expecting to have a very strong shipment for new base stations with ReefShark? I would have thought that might have helped along with maybe the seasonality for the new iPhones. Can you kind of just walk us through the puts and takes, why you see Q4 flattish with Q3 for royalties?

Yes, sure. So in our expectations for the fourth quarter, surprisingly enough, we do not take into consideration any revenues from Nokia yet. Yes, they have a lot of interesting opportunities, pipeline, deals closed and we follow them. But we do not know yet to specifically estimate how many chips translate on a quarterly basis or even at this point on an annual basis. And we're waiting for these new royalty reports to kick in. So I'm not sure if we answered Gary in the prior question, but this also implies for the third quarter. So we are still waiting for that ramp up. We believe it's going to come. We don't know the magnitude and we don't know exactly the timing of these ReefShark chips. And as soon as we get those reports, the first report, of course, we'll be happy to share that and to add it to our either numbers or estimates going forward. So Q4 is really built on the existing interesting dynamics that happened this year for us, some on the positive side like the well-known U.S. high-end devices that were launched recently with Intel and CEVA powering them. On the other hand, the softness in some of our largest customers in China, not necessarily to the Chinese market but to the rest of the world, [every other base], they shift in to another part and they continue to be out there with some improvements but not to the same level that we have experienced over the last couple of years. So we hope that, that will again kick in at the later stage. For now, we have bundled all that. We do add into consideration, I think as Gideon mentioned, ZTE. ZTE is already in production. It is very fast [in the financial] report and we are sure now that Q4 will have a base station revenue coming from them. We don't have that same indication yet from the Nokia standpoint. So -- but we're very happy that after 2 quarters of $7.5 million and different explanations around that, we are back to how we started the year with a different allocation of royalties. Second half is probably much stronger than the first half. And we believe that, that level could be even stronger than in Q3, but not yet with the full [engines and] royalties kicking in for them. That's not happening. But in Q4, though, with better estimates from non-baseband, from base stations now back to business or partially back to business and from the handset side to some degree.

And just a quick follow-up question for me. How do you see maybe the annual base station opportunity into 2019 and '20 from your current licensees?

How to answer this kind of question at this stage? Because it depends on primarily the deployment, the investment the operator are going to make in commercializing. A lot of operators are speaking about 5G and signing contracts, but the question is when they'll do it and to what extent, how fast it's going to be. So what we have today is basically the revenue that we are collecting, as Yaniv mentioned, [he's told you]. We'll know better, in my opinion, in 2019. Could be first that we start seeing things. But when this ball will start rolling, it will roll, and it could roll fast.

And our next question today comes from Matt Ramsay of Cowen.

This is Josh Buchalter on behalf of Matt. I guess I'll try to ask the previous question in a slightly different way. If we think about some of the qualitative commentary we've heard on 5G this quarter, it seems like there's a lot of activity picking up. Can you maybe help us understand how you would view the cadence of your customers' products, how they would ship versus some of the things that we have seen built so far?

Sorry. Could you repeat that again?

I'm sorry. So I basically was just asking that, given some of the commentary of pickup in builds this recent quarter, could you help us understand, like, the cadence in how your customers' products would ship in relation to those maybe versus some of the long-haul infrastructure being laid down?

So I hope I understood your question. But, I believe you referred to 5G, right?

Sorry.

Yes, that's correct?

Yes, that's correct.

Okay. So the play -- our play in 5G, as you know, is in baseband, it's in base station side and in the handset, in the device side. Now what we see today is, in the base station side, they are more advanced, they have the product, they sign contracts and now it's a matter of the pace of commercial deployment because our technology is going into commercial deployment. You have all those testing and initial deployment, these are not where our product are going. Our products are providing power efficiency and [growth] efficiency and people are putting in when they get commercial deployment. At this stage, we don't get all this from this pattern of deployment. And we believe we are going to see this coming in 2019 based on what we are discussing with customers, based on what we see from public announcements. On the device side, I think they are behind. We are -- we do have customers that deal with 5G technologies for 5G. Whether it's going to be a meaningful deployment in 2019, I saw just recently analysis that they say only 1% of the total handset market will be 5G next year and will be 20% in 2020. So that's, I believe, giving you color with what to expect on 5G.

On the handset side.

On the handset side.

Okay, that was helpful and sorry for the confusion. And then my follow-up, if we sort of back into the royalty-per-unit number in your royalty revenue this quarter, it looked like there was a nice sequential step up. Could you maybe talk about some of the drivers of that and how we should think about that going forward?

Yes, that could change over the course of 1 quarter to the other, and we continue and explain that we look at the total dollar value there is strong and the key indicator of the healthiness of our royalties, and as long as the dollar increases, that's a good -- we're happy with that. With that said, this quarter, specifically, is a different mix between high-end phones and newer technology versus lower-end devices with the lower ASPs. And what we witnessed in the beginning of 2018, which continued throughout the year, is the low-dollar-value shipments from our key customers in -- one of key customers specifically in China, and this is more lower or midrange type phones versus a very strong pick up from September this year and the pre-order for that segment which have newer technologies inside, higher ASPs and higher content from our point of view. The mix is favorable this time around. Muted, of course. Much higher volume or the highest we ever had offset that as an average. But on the other hand, add more dollars to the overall dollar content of the royalties. So I think we're going to have mixed numbers or calculations around it. And assuming the 5G stuff and the base station stuff that Gideon talked about kicks in and, as we said, the ball is rolling, not just starting to roll, but it's rolling downhill, then those ASPs are much, much higher because we're talking about much more expensive type of chips that we will be in that have a selling price of $100, $165, and that's a much different ASP than what we have been used to in the past.

(Operator Instructions) Today's next question comes from Suji Desilva of Roth Capital.

Can you help us, first of all, in terms of looking ahead to 2019, perhaps the royalty growth, what the opportunities are, how you'd rank smartphone versus wireless infrastructure, versus IoT connectivity, video imaging, voice? Just give a sense of where you think the pockets of growth will be in '19.

Suji, so when it comes to 2019, of course, we cannot -- we will not quantify it. We still need to do the work. But we are not firing on all the cylinders that we can in terms of the product that are coming. So base station, we expect to see a ramp next year. Again, the timing and the pace is something that we will have to see. Now that's waiting for prime time, I should say. Then we have the non-handset baseband. And you mentioned computer vision, you mentioned -- I mean, there will be AI, Bluetooth, WiFi. And the way we see it, it's one big basket that -- the good news is they are all different industries, different customers and we are not biased to one trend or one crisis in the market. The idea is to [collect that]. There's many, and that's the importance of licensing. And the fact that we have 13 agreements means that we have more than 13 new projects starting. Some of them could be in 9 to 12 months in the market. And so basically we're going to see new SKUs coming from existing ones, whether it's going to be consumer, the industrial Bluetooth. And I mean, all of them should come together and continue, I mean, like the nice ramp that we see almost every quarter. So this will continue at the pace. Whether it's a stronger pace than today or what pace, we will have to see and we'll do the work by the end of the year. And then the flagship model that we view, we are there. And that's an important contribution for us. And the fact that it's basically, it's one supplier there. That's a dramatic change for us. And we'll have to see because they have different order patterns than others, but that's a dramatic change for us, and we hope to capitalize it.

Okay. And then specifically on the wireless infrastructure, I recall you had a third customer as well. Just remind me if that's correct. And if so, what's the status of that third customer relative to ZTE and Nokia?

It's a 5G design, Suji. We talked about earlier that it's not yet in production or in deployment. So that's a little bit of a later on, not even sure 2019, but could be a 2020 type of event for us. And back to the original question about the 2019 royalties. I think what Gideon explained on a product-by-product basis is we have all the interesting licensing activity that we had over the last year working well for us. I don't think we've done yet the homework for 2019. We will do it in the next earnings call and try to give more color of how this all plays out, in what quarters and what product lines. So I think we just lined them up and gave each one the explanation of the opportunity, but a bit too early to quantify the contribution from each one at this point.

And our next question comes from David O'Connor of Paribas.

Maybe Gideon, firstly, one on China, and Spreadtrum in particular. When China rebounds from the soft handset trends you're seeing currently, do you expect customers like Spreadtrum to have a similar market share? Or do you think they could be losing share as well and the dynamics of any rebound could be different to what we've seen in the past?

The handset market is very dynamic. But one thing I can tell you is Spreadtrum is a very powerful company and they are in a position to compete with MediaTek and Qualcomm and almost all the peers there other than, of course, the high-end stuff. So when -- they had a customer loss and they are now -- in a way, we feel [almost the] announcement that they are recovering, but we have to see. Now overall, we cannot ignore and it won't -- the overall health of the market, the growth there is limited. So the 5 [things] -- of the 5G. The -- it's all about gaining share. So it's a zero-sum game. But as I said, Spreadtrum is extremely determined and very powerful to win a larger share than they have today.

That's clear. Maybe just follow up on NeuPro. Can you talk a small bit about the licensing pipe of NeuPro in particular? And has that changed from the last quarter? And what type of customers you're engaged with there, please?

That's a good question because when people are -- I believe when people are looking around their industry in general, they get confused. So many players, so many [borders being] real different, unique architecture. Now the way we see it, there is this first wave of AI customer. And those are -- those AI customer or those AI -- those companies that are vertically integrated, meaning they can develop not just the chip but also can develop the application that runs the AI application. There are not that many. And I'm talking about the edge side, the embedded side, not the cloud. The cloud is completely different and we don't play in the cloud for now. So there are companies in the automotive space, there are companies in the digital camera, there are companies in the drones market. I mean these are -- you will have those companies that are -- they know how to develop applications. In this case, meaning AI vertical, people that know, that understand the -- not understand but can develop an application, CEVA's position is very strong. People are using our technology. It's not just the context or the viewpoint which is [how do you] base technology but also in our DSP. So we've gained with this customer a lot of experience, especially on the software that we call a [figure]. Just to give example on what does it mean, one of our competitors announced, in a recent technology event, performance metric about his AI engine. And our performance is 3x better than this competitor. [Big performance, first of all]. So that's the first wave of customers we are engaging with, and some of them are basically upgrading from the initial DSP base to the NeuPro area. And now, we are now seeing a lot of newcomers, people that treat AI as just a block in their chip, which they rely on [anybody else] from this customer to develop their application. [Still] the expectation that 90% of the SoCs in the world will have these kinds of AI engines. So those companies are a bit slow in their decision-making, but they're catching up. And we see -- going forward, when it comes to NeuPro developing, we see all those companies that treat AI as an engine and don't see themselves developing the application. And if you ask me how the pipeline is composed, you see all those newcomers coming and here, again, our software becomes very critical, because without having the software, their customers cannot develop such applications.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Richard Kingston for any closing remarks.

Great. Thank you for joining us today, everybody, and for your continued interest in and support of CEVA. We will be attending the following upcoming events. I invite you to meet us there: the Benchmark Discovery One on One Conference in Chicago on November 29; and Barclays Global TMT Conference in San Francisco on December 5. Please visit the Investors section of our website for further information on these events and other events we will be attending. Thank you, and goodbye.

Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.