CEVA, Inc. (CEVA) Q4 2025 Earnings Call Transcript

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Overview

The earnings call summary shows strong financial performance with record revenues and shipments, improved operating income, and increased EPS. The Q&A reveals a healthy NPU pipeline and potential for further OEM adoption, despite some uncertainties in memory pricing and royalties. The company's strategic focus on AI and connectivity, alongside a robust M&A strategy, suggests a positive outlook. Given these factors, the stock price is likely to see a positive movement in the short term.

Key Financial Performance

Fourth Quarter Revenue $31.3 million, increased 7% year-over-year and 10% sequentially. Reasons: Strong execution across technology pillars and broad demand across multiple end markets.

Licensing Revenue $17.5 million, increased 11% year-over-year and 9% sequentially. Reasons: Strong execution and demand across AI, connectivity, and sensing technologies.

Royalty Revenue $13.8 million, increased 2% year-over-year and 12% sequentially. Reasons: Growth in diversified Smart Edge royalty customers offsetting mobile softness.

Wi-Fi Shipments Record high, up 31% year-over-year in Q4. Reasons: Increased deployment, often as part of combo connectivity chips.

Cellular IoT Shipments Up 30% year-over-year in Q4. Reasons: Driven by Smart Edge applications.

Full Year Revenue (2025) $109.6 million, increased 2% year-over-year. Reasons: Licensing and related revenue grew 6% due to strong demand across AI and advanced connectivity, while royalty revenue was down 2% due to smartphone softness and memory supply shortages.

CEVA-powered Devices Shipped (2025) Record 2.1 billion units, up 6% year-over-year. Reasons: Record Wi-Fi shipments (up 48%) and record cellular IoT shipments (up 42%).

Non-GAAP Operating Income (Q4 2025) $5.7 million, increased 26% year-over-year. Reasons: Improved operating discipline and financial mix.

Non-GAAP Net Income (Q4 2025) $4.9 million, increased 86% year-over-year. Reasons: Higher revenue and improved financial performance.

Non-GAAP Diluted EPS (Q4 2025) $0.18, increased 71% year-over-year. Reasons: Improved profitability and revenue growth.

Annual Non-GAAP Net Income (2025) Increased 20% year-over-year. Reasons: Record high revenues in Q4 and improved operating margins.

Annual Non-GAAP Diluted EPS (2025) Increased 17% year-over-year. Reasons: Sustainable growth and profitability.

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Operating Highlights

AI for Smart Edge: CEVA accelerated its expansion into AI for the Smart Edge, focusing on Physical AI where devices connect, sense, and infer data locally.

NPU Licensing: Signed an NPU licensing agreement with a leading PC OEM for next-gen AI personal compute architecture, marking a breakthrough for on-device AI adoption in PCs.

Wi-Fi 7 and Bluetooth: Secured multiple Wi-Fi 7 and Bluetooth combo connectivity wins, including a deal with a major white goods manufacturer for smart home applications.

Motion Engine Technology: Licensed motion engine technology to a leading TV platform for integration into smart TV operating systems.

Smart Edge Applications: Generated 86% of total revenue from Smart Edge applications, with market share gains in consumer, automotive, industrial, and infrastructure markets.

Wi-Fi and Cellular IoT: Record Wi-Fi shipments grew 48% YoY, and cellular IoT shipments increased 42% YoY, driven by Smart Edge applications.

AI Processor Licensing: AI processor licensing represented a significant portion of licensing revenue, with an estimated lifetime royalty potential of $125 million from 2025 agreements.

Revenue Growth: Achieved record quarterly revenue of $31.3 million in Q4 2025, a 7% YoY increase.

Licensing Agreements: Signed 54 licensing agreements in 2025, including 10 OEM agreements and 12 multi-technology licenses.

Royalty Revenue: Exited 2025 with the strongest royalty quarter in over 4 years, with royalties growing sequentially each quarter.

Physical AI Era: Positioned CEVA for the Physical AI era by offering a comprehensive IP portfolio for connectivity, sensing, and inference.

Customer Integration: Deepened integration with customer roadmaps, providing a complete IP stack to increase value per device.

Long-term Royalty Potential: Estimated $125 million in lifetime royalty potential from 2025 agreements, reflecting a durable and accelerating licensing and royalty model.

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Risk or Challenges

Memory Pricing and Supply Constraints: Memory pricing and supply constraints continue to impact smartphone shipments, which could adversely affect royalty revenues and overall financial performance.

Smartphone Market Softness: Softness in the smartphone market has led to a decline in modem shipments, which could negatively impact royalty revenues.

Foreign Exchange Headwinds: The strengthening of the euro and Israeli shekel against the U.S. dollar has created foreign exchange headwinds, increasing expenses for research and development teams in Europe and Israel.

Seasonal Royalties Decline: Seasonal trends, particularly post-holiday season, are expected to result in lower royalties in the first quarter of 2026, impacting revenue.

Long AI Design Cycles: AI design cycles are longer than traditional connectivity deployments, which could delay revenue realization from AI processor licensing agreements.

Economic and Market Conditions: Broader market conditions, including memory pricing fluctuations, could impact the timing and growth of royalty revenues.

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Guidance & Outlook

Revenue Growth: Total revenue is expected to grow 8% to 12% over 2025, with lower growth in the first half of the year and higher growth in the second half, subject to memory pricing fluctuations and supply challenges.

Licensing and Related Revenues: Growth is expected to be driven by AI adoption across multiple industries, an increasing mix of higher-value, more integrated engagements, and leadership in wireless connectivity supported by a diversified product portfolio.

Royalty Revenue: Encouraging momentum is expected across connectivity product lines, including 5G handset modems, Bluetooth, Wi-Fi, and cellular IoT, as deployments broaden and programs licensed in recent years continue to ramp.

Non-GAAP Expenses: Total non-GAAP expenses in 2026 are expected to increase by 1% to 3%, excluding currency impacts. Including foreign exchange effects, expenses are expected to increase by approximately $5 million.

Non-GAAP Operating Income and Net Income: Non-GAAP operating income and net income are anticipated to increase significantly by approximately 35% to 40% year-over-year.

Gross Margin: Gross margin is expected to be approximately 88% on a GAAP basis for the year.

First Quarter 2026 Revenue: Revenue for Q1 2026 is forecasted to be between $24 million to $28 million, lower than Q4 2025 due to seasonality but significantly higher than Q1 2025 at the midpoint.

First Quarter 2026 Gross Margin: Gross margin for Q1 2026 is expected to be approximately 86% on a GAAP basis and 87% on a non-GAAP basis.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you provide an idea of the scale of your NPU pipeline compared to last year and the end market exposures?

A:The NPU pipeline has grown significantly, with more than 10 deals captured in 2025. The company has built a complete portfolio of NPUs for Smart Edge markets transitioning to Physical AI. The pipeline is healthy across consumer, computing devices, embedded MCU applications, industrial, and automotive submarkets.

Q:Is the dedicated NPU for the PC OEM a separate chip or integrated into a CPU package?

A:The NPU is a separate chip integrated into the SoC platform built by the PC OEM. The company provides the core NPU functionality for integration.

Q:What are the competitive dynamics for the NPU win, and will there be multiple NPUs in PCs going forward?

A:The high-end compute devices require best-in-class performance, including power per watt and latency. The OEM chose the company for its core silicon IP technology and software integration, which deliver high performance. The company is well-positioned competitively.

Q:Can you provide more detail on the first half versus second half guidance, especially regarding end demand and memory pricing?

A:The business is diversified across Smart Edge submarkets, with similar seasonality as previous years. Mobile market share is expected to increase despite potential impacts from memory shortages. The company anticipates strong seasonality in 2026, driven by market share gains.

Q:What is the timeline for the $125 million in lifetime royalty potential from NPU deals?

A:Six NPU customers are expected to be in production by the end of the year, with royalty contributions beginning in 2027. Consumer PC design cycles are shorter, so royalties from this market may start earlier.

Q:Is the PC OEM win a one-off case, or is there potential for additional OEMs to adopt CEVA-based solutions?

A:While the PC market has fewer customers, the ability to internalize AI capabilities and optimize use cases provides value. There is potential for other OEMs to adopt similar configurations.

Q:What are the pipeline opportunities in Physical AI, and which app categories offer the largest incremental royalty opportunity?

A:Physical AI opportunities are emerging in robotics, expanding from warehouses to broader applications. Robotics require wireless connectivity, sensing, and decision-making capabilities, presenting significant potential.

Q:What would need to improve in fiscal 2026 to trend toward the high end of guidance?

A:Stronger licensing, royalty ramp-ups, and favorable memory market conditions could drive revenue growth. Expense management and currency exchange rate changes could also impact results.

Q:How does the company view M&A opportunities with its strengthened balance sheet?

A:The company aims to use its financial strength to acquire IP assets that align with its business model, expanding growth and profitability potential.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the assumptions for first-half versus second-half seasonality and the exact timeline for royalty contributions from NPU deals. Additionally, they did not clarify the exact impact of memory shortages on mobile market performance or provide precise predictions for 2027 royalty revenues.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reveals mixed signals: while total revenue and licensing revenue have grown, royalty revenue has declined, and there's a GAAP operating loss. The cautious revenue guidance and lack of a share repurchase program are concerning. Although there are positive signs in Wi-Fi royalties and licensing, economic uncertainty and a cautious approach impact sentiment negatively. The Q&A highlights management's lack of clarity on key competitive metrics, adding to uncertainty. Overall, the negative aspects outweigh the positives, suggesting a negative market reaction.

CEVA Report

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