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Edited Transcript of CEVA earnings conference call or presentation 4-May-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 CEVA Inc Earnings Call

MOUNTAIN VIEW May 19, 2017 (Thomson StreetEvents) -- Edited Transcript of CEVA Inc earnings conference call or presentation Thursday, May 4, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gideon Wertheizer

CEVA, Inc. - CEO and Director

* Richard Kingston

CEVA, Inc. - VP of Market Intelligence, Investor & Public Relations

* Yaniv Arieli

CEVA, Inc. - CFO and Treasurer

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Conference Call Participants

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* David O'Connor

Exane BNP Paribas, Research Division - Research Analyst

* Gary Wade Mobley

The Benchmark Company, LLC, Research Division - Research Analyst

* Matthew D. Ramsay

Canaccord Genuity Limited, Research Division - Principal and Senior Analyst

* Matthew S. Robison

Wunderlich Securities Inc., Research Division - Analyst

* Sujeeva Desilva

Roth Capital Partners, LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good morning and welcome to the CEVA Q1 2017 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 and Public Relations. Please go ahead.

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Richard Kingston, CEVA, Inc. - VP of Market Intelligence, Investor & Public Relations [2]

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Thank you, Denise. Good morning everyone and welcome to CEVA's First Quarter 2017 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 provide general qualitative data. Yaniv will then cover the financial results for the first quarter and provide guidance for the second quarter of 2017. 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 2017 including the degree of confidence in the guidance, general market outlook and revenue drivers for 2017; optimism about the licensing pipeline and the trend leading to the expectation of a favorable licensing environment, market opportunities and ability to leverage market trends for vision and imaging, LTE, IoT and BIoT, Bluetooth, 5G, automotive, smart home and smart voice devices, projective customer ramp up schedules and results in royalty revenues and timetable for CEVA XE12 reference silicon.

The risks, uncertainties and assumptions 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-baseband 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, LTE and 5G networks, Bluetooth 5 and the IoT space, customers' ramp up schedules and the impact on royalty revenues, 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.

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Operator [3]

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Pardon me, this is the conference operator, it appears we are having some technical difficulty. I would ask you to continue to hold the line for one moment please. Pardon me, this is the conference operator, I appreciate you holding. I would like to go ahead and connect Yaniv into the call at this moment. Please go ahead, sir. Pardon me, Yaniv? Pardon me, this is the conference operator, again we appear to have some difficulty in technical area. Please hold with the hold music. Pardon me, this is the conference operator, I have connected Yaniv's line. Please go ahead, sir.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [4]

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Hello, this is the CEVA guys, are we connected now to the call?

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Operator [5]

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Yes sir, you are connected. Thank you so much.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [6]

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Okay. Don't worry about that. So, let me start from the beginning with my prepared remark. So, we delivered exceptional results for the first quarter. We achieved an all-time high quarterly revenue, including our strongest licensing quarter ever and our key customer wins. Once we took advantage of the world's largest consumer and wireless event CES, Mobile World Congress to announce our next generation platform for a range of application and a number of strategic agreements with customers. I will summarize these achievements in the next few minutes.

Let me begin with the financial highlights. Revenue for the first quarter came in a new record high of $21.3 million, up 29% year-over-year. Licensing and related revenue was also record high at approximately $9.5 million, up 10% year-over-year on the back of 11 deals that were concluded. Of those 11 deals, 8 were for DSP platform and 3 were for our connectivity IPs. All of the 11 bills were for non-handset baseband application, 4 of which were with first time customer. Customers private application include 5G base station, automotive ADAS, surveillance camera, smartphones, smart home appliances and a variety of IoP devices enabled by our connectivity portfolio.

The outstanding licensing performance during the quarter not only delivered record revenue, but also enabled us to grow our backlog because of a number of comprehensive agreements for our most advanced technologies executed during the quarter. (inaudible) provide us with higher visibility and confidence in meeting the growth in annual licensing that we guided at the beginning of the year.

On royalties, revenue came in slightly better than the guidance at $11.8 million, up 50% year-over-year primarily driven by LTE shipments during the holiday season and record shipments by our Bluetooth customers. Let me, at this stage, elaborate on four different aspects of our licensing achievements. The first relates to a comprehensive agreement, we still won base station OEMs that adopted two of our most advanced DSP platforms, the XC12 and X2, for 5G base station. It is the second lead customer that selected our technology for 5G base station and a big endorsement for our unique portfolio and specialization in the emerging 5G wireless market.

Deployment of 5G base station continue to progress in advance of a fully ratified 3GPP 5G New Radio standard, which is expected in 2019. This allows cellular operator to engage in earlier testing of a variety of new use case that encompass the 5G standard including multi-gigabit per second mobile broadband mission critical services in IoT.

Our XC12 and X2 platform are key businesses in the 5G new architecture allowing successive software upgrades and harmonization of the network as the market approaches commercial deployment. The second aspect relate to two agreements signed in the automotive space. One agreement is for ADAS application and the other agreement is our first agreement targeting autonomous driving, also referred as AD. The ADAS customer is a well known tier one OEM and an existing customer that selected our latest XM6 platform and CNM software for a range of camera relating products in cars. The XM6 based project will offer roughly 3x the performance compared to the prior ADAS project that centered on the XM4 and is planned for commercial deployment early next year.

In the autonomous driving space, we signed an agreement with one of the largest car OEMs. The agreement relate to a [deeply run] network software for performance assessment in different AI scenario applicable to level three to level five of autonomous driving. While it is not a full-fledged license agreement for committed AD project, it is the first time that a leading OEM allocated funds and resources to get access to our deep network software and hardware technologies for autonomous driving.

Another noteworthy agreement is with top-tier, high-volume, China-based semiconductor company who has extended its existing license agreement for vision platform to become a multi-use one. In less than a year of the original license, this customer succeeded in leveraging our vision platform to develop a compact image enhancement chip for smartphones that enhances the image quality via computer vision software.

The Asus Zenfone 3 Zoom Smartphone with a super pixel camera sold in Asia including the U.S. already makes use of the customer CEVA based platform. The Zenfone 3 Zoom can capture 2.5x more light in a given silicon sensors versus premium phones like iPhone, iPhone 7 plus, LG G6 and others, leading to substantially sharper still picture particularly in a low light conditions. There are already few other smartphone OEMs that design in this platform in their product with production anticipated for the second half of the year. In addition, the same customer is designing in with many other different products such as 360 degrees camera, security camera, drones and more, all based on our vision platform.

The last agreement I would like to highlight is the second license agreement for the latest CEVA X2 platform targeting voice controlled smartphone devices. This design win is for high profile device for one of the largest cloud-based service company. The perception of using voice as an alternative to touch or mouse as a way to interact with the cloud for services changed dramatically after the launch of Amazon Alexa voice assistant and its Echo devices back in 2014. It drove other cloud vendors to come out with their own smart voice assistant devices as well to enable their OEM partners to come up with innovative use cases and devices integrating their voice assistant interface. Voice assistant devices have to ensure that they pick up good quality voice from any point in the room. It require processing of complex DSP algorithms and workloads such as deforming, echo cancellation, noise cancellation and others. It is therefore a perfect match for what CEVA offers in terms of the CEVA X2 DSP software and algorithms.

At the recent Mobile World Congress we launched our latest DSP platform. The CEVA XC12 set a new bar in DSP performance aiming at multi-gigabit per second bit rate modems for 5G, LTE Pro and LT2 11A. It offer 8x higher performance at half the power versus its predecessor called the CEVA XE4500. At MWC, we also announced the Dragonfly MB1, our full solution for LTE IoT in collaboration with ASTRI of Hong Kong. The Dragonfly MB1 platform addresses the stringent requirements for extremely low power and low cost for outdoor connected devices such as smart meter wireless connected transformers in CTs and industrial environment. It is a full solution composed of our low cost CEVA X1 DSP, RX transceiver and software all packed in one chip. Our reference silicon will be available for customer in the second half of the year.

Turning now to royalties and the related market dynamics. On smartphones, the market backdrop looks positive with sizable untapped market for LTE. So far, only 25% of the world's handsets are LTE based and much less for LTE Advance and gigabit LTE. India in particular is experiencing a brisk environment for smartphone, which demand grew 18% last year. The feature phone space in India also grew 4% last year in light of attractive SKUs that are LTE enabled. CEVA-enabled phone shipment last quarter outperformed the market on a year-over-year basis, up 49% year-over-year with smartphone moving up 108% year-over-year.

Next, I want to touch on a few important launches of new CEVA-based products or chip that soon will be seen in the market. Xiaomi announced during a packed event the launch of its latest smartphone Xiaomi V5C that is enabled by new chip from its subsidiary Pinecone that incorporates a CEVA [SBI] DSP. Tear down analysis of DJI's latest Phantom Advanced drones, the (inaudible) and the Phantom 4 plus revealed a CEVA-enabled SBI DSP that is used for wireless communication between the drone and the controller. Intel unrolled the specification of its latest XMM7560. Intel 7560 features LTE category 16, which supports gigabit per second speed. The 756 chip is also a six mode and includes for the first time on chip CDMA modem.

On the non-handset front, shipments units continued to grow towards 7% for the quarter and up 68% year-over-year driven by global shipment. During the quarter, ON Semi announced its first CEVA-powered Bluetooth 5 chip. The RLS10 is a highly flexible ultra miniature SOC targeted for IoT and [connected hands]. Dialog announced its first Bluetooth 5 chip, Dialog DA 14586, a low power device for consumer products such as wireless speakers, watches and the like. Both chips are expected to be in mass production during this year. We also see the initial production ramp of smartphone enabled bio vision processor like the Zenfone 3 from Asus that I discussed a few minutes ago.

Wrapping things up, I am very pleased with our performance in the first quarter. It is an exciting time for us as we continue to take advantage of our strengths and specialization to expand into growing number of new market opportunities and to take our technologies into major franchises in those new areas. As we continue to progress and leverage in the dynamics in our timing the market the baseband processing for smartphone, our expansion into base stations, automotives, drones, smartphone and IoT is fully underway.

We are also directed and determined to take advantage of those transformative trends to provide compelling revenue to our shareholders. With that said, let me turn the call over to Yaniv to discuss our financials and guidance.

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [7]

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Thank you, Gideon. I will start by reviewing the results of our operations for the first quarter of 2017. Revenue for the first quarter was $21.3 million. This would also be our sixth consecutive quarterly all-time high record achievement, up 29% on a year-over-year basis.

Revenue breakdown is as follows, licensing and related revenues were $9.5 million, reflecting 45% of our total revenues, 10% higher as compared to the first Q of 2016 and a new record high. Royalty revenue was $11.8 million reflecting 55% of our total revenues, an impressive increase of 50% on a year-over-year basis and this would be the ninth successive quarter that we delivered year-over-year royalty growth.

Total gross margin was 92% in both U.S. GAAP and non-GAAP basis. The non-GAAP basis included approximately $91,000 of equity based compensation expense. The total operating for the first quarter was just above the mid range of our guidance at $15.2 million. OpEx also included an aggregated equity based compensation expense of approximately $1.9 million and $0.3 million for the amortization of the acquired intangibles of RivieraWaves. Total operating expenses for the first quarter, excluding equity based compensation expenses and the amortization and intangibles, were $13.1 million, just over the mid range of our guidance. U.S. GAAP net income and diluted EPS for the first quarter was up significantly by 128% and 111% to $4.1 million and $0.19 respectively over the first quarter of 2016. Non-GAAP net income and diluted EPS for the first quarter increased 77% and 65% year-over-year to $6.3 million and $0.28 respectively. Both figured smooth equity based compensation expenses net of taxes of $1.8 million and the impact of the amortization of the acquired intangibles of RivieraWaves of $0.3 million.

Other related data. Shipped units by CEVA licensees during the first quarter of '17 was all-time high. We reached 352 million units, up 3% sequentially and 53% from the first quarter shipments of 2016. Of the 352 million units shipped, 276 million units or 78% were for handset baseband chips reflecting a slight sequential increase from 271 million units of handsets baseband chip during the fourth quarter of 2016 and 49% increase from 185 million units shipped a year ago.

In non-baseband, volume shipments continued to increase 7% sequentially and 68% year-over-year. The increase is due to record high quarterly Bluetooth shipments in Q4 and continued initial ramp up of vision products powered by our DSP offset by some other seasonality decreases. As for the balance sheet items. As of March 31st, 2017, CEVA's cash, cash equivalents, balances, marketable securities and bank deposits grew to approximately $164 million. Our DSOs for the first quarter was 58 days down from the prior quarter of 65 days. During the quarter, we generated $6.3 million of net cash from operation, depreciation was $0.4 million and purchase of fixed assets was relatively large for a first quarter at the level of $1.4 million, which represented a purchase of new EDA tools, IT room expansion and some other R&D related software additions. At the end of March '17 our headcount was 292 employees of which 233 were engineers.

Now for the guidance. Licensing, as Gideon described, we continue to experience healthy demand across the entire range of products we offer. Therefore, we anticipate flattish licensing revenue for the second quarter as compared to the first quarter's all time record high achievement. On royalties, we expect a seasonal sequential decline of 10% to 15% resulting from inventory adjustment in the smartphone space as the vendors are setting up production ramp for new streams during the second half of the year and post the Christmas season in the consumer part of our business. We still maintain our yearly annual guidance of 10% to 20% royalty revenue growth compared to 2015. Our guidance for the second quarter of '17 is as follows. Revenue for the second quarter is expected to be in the range of $19.1 million to $20.1 million. Gross margin is expected to be approximately 92% on both GAAP and non-GAAP basis, excluding an aggregate of $0.1 million of equity based compensation expense.

Our overall OpEx should be flattish with the first quarter. Q2 OpEx is expected to be in the range of $14.8 million to $15.8 million. Of our anticipated total OpEx for the second quarter, $2 million is expected to be attributed to equity based compensation expenses and $0.3 million to the amortization of acquired intangibles. Our non-GAAP OpEx expense is expected to be in the range of $12.5 million to $13.5 million. Net interest income is expected to be approximately $0.5 million. Tax rate for the second quarter on GAAP basis, 16% and on non-GAAP basis, 13%. In addition, we have just concluded a tax audit and the results will be recording an additional one-time tax benefit of approximately $1.3 million in the second quarter of 2017 on both GAAP and non-GAAP basis. Therefore, our overall taxes for the second quarter will be significantly lower than the norm. Share count for the second quarter is expected to be approximately 22.8 million shares and that will bring us to U.S. GAAP fully diluted EPS in the range of $0.16 to $0.18 per share and non-GAAP fully diluted EPS, excluding $1.9 million of equity based compensation expenses and $0.3 million to amortize expenses associated with RivieraWaves to a range of $0.26 to $0.28 per share. Denise, you can now open the Q&A session, please.

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Questions and Answers

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Operator [1]

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[Operator Instruction]. Our first question comes from Gary Mobley from Benchmark.

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Gary Wade Mobley, The Benchmark Company, LLC, Research Division - Research Analyst [2]

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I wanted to start out with where you have finished, Yaniv. The EPS -- non-GAAP EPS guidance of $0.26 to $0.28, does that include the $1.3 million tax benefit, is that right?

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [3]

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Yes, correct Gary.

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Gary Wade Mobley, The Benchmark Company, LLC, Research Division - Research Analyst [4]

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And you mentioned a 5G license agreement with a base station equipment OEM. I am curious to know, is this an existing licensee or did you expand your footprint in the base station market?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [5]

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We said that this is the second base station licensee that we have with this advanced platform, the XC12, and yes, it is an existing licensee meaning that this licensee took our prior generations of DSPs.

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Gary Wade Mobley, The Benchmark Company, LLC, Research Division - Research Analyst [6]

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And you are indicating another robust licensing quarter, you mentioned backlog increased, I guess, significantly I think is the adjective used in your press release and but yet your deferred revenue is flat sequentially. I note flat revenue is only one component of the backlog, but could you help us get a sense of the firmness of the backlog and where the source comes from?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [7]

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So, yes, the deferred revenue increases when we get paid, not all the deals that happens in advance, we did find a few deals, one of them specifically in that same 5G arena that you asked about. That design win we clearly have to do additional work for that specific customer, we haven't recognized that yet in Q1, although it was fine and we will probably recognize that over the next couple of quarters. That's one of the big elements of the backlog. And with that said, we also concluded a few other deals that we will deliver the technology and finalize the work around it during the second quarter and that will be part of the revenue in Q2. So, yes, we did increase our backlog from the yearend to Q1. Some of it falls into Q2 and this is why we were confident to get such high guidance on licenses and some of it will move even to the third quarter of the year.

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Gary Wade Mobley, The Benchmark Company, LLC, Research Division - Research Analyst [8]

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What are the LTE units in the quarter?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [9]

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We are just over 80 million units, I believe.

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Gary Wade Mobley, The Benchmark Company, LLC, Research Division - Research Analyst [10]

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And looking at the non-mobile handset based royalty units, they continue to grow, but that has been mostly a function of Bluetooth royalty unit growth and that's not necessarily a problem. Just sort of dissecting in non-mobile handset basebands, subtracting Bluetooth royalty units, it seems to be somewhat stagnant for the last few quarters, may be 3 or 4 quarters actually at a sub 20 million unit per quarter level. So, I am just wondering if we are going to see an uptick in that and which I guess is not necessary to get us to that 700 million to 900 million non-mobile handset based royalty unit number for 2018?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [11]

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So, Gary, the Bluetooth 5 it's a volume play and it's growing. What we do see is vision getting into mass production. So, in terms of units, it's not comparable because Bluetooth is a much more commoditized product, but in terms of contribution and ASP, it's significantly higher. So, if you ask about things that will flourish in the non-baseband section part of our business, vision is the next thing to come, the next in line.

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Operator [12]

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Your next question is from Matt Ramsay from Canaccord Genuity.

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Matthew D. Ramsay, Canaccord Genuity Limited, Research Division - Principal and Senior Analyst [13]

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Gideon, I wanted to talk a little bit about the royalty performance in the upcoming year. There is always a good bit of moving parts, but given the fact that you are going to be having much higher volume shipments of LTE chips from Intel, one of your big partners, and the outlook seems to have cleaned up a little bit at Samsung after the launch of the Galaxy S8. So, I am just wondering what the sort of moving parts are to potentially be above the midpoint of your guidance for the year and any headwinds that you could call out that might be pressuring the results a little bit because as always there is moving parts, but it seems to me that the outlook would have cleared itself up a little bit from when we talked last quarter.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [14]

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When it comes to the mobile side of the business, it's on the second half play because almost everybody is launching new SKUs and there is also the landscape could change, moving things from the guys that used to dominate into Chinese one like Vivo and Oppo and all these guys. So now we want to keep our guidance for the year. We have to see because it's all about the new phones that's coming and then it's a matter of consumer adoption. It's very difficult to be precise on the mobile side of the business. So on the non-handset side, we see those answer to Gary last year smartphones coming into the market based on our vision technology, in the same handset it's a matter of consumer adoption, the design new product and head-on to our traditional business on the modern side of the business. And we have to see how things will evolve before we become more persistent and knowledgeable onto the clients.

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Matthew D. Ramsay, Canaccord Genuity Limited, Research Division - Principal and Senior Analyst [15]

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I wanted to follow-up a little bit on the licensing. I know some -- Gary had asked some questions about second quarter and into the third quarter, but Yaniv, do you feel like this is a range that you guys are now comfortable operating in on a quarterly basis given the strength of the pipeline? I know there has been a sort of $7 million to $8 million range for licensing in the past and then you guys had pumped it up a bit in recent quarters. So I just for a long-term through modeling given the visibility that you mentioned in the call, how should we think about the rate on a quarterly basis going forward?

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [16]

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Yes, sure. You are absolutely right, but at the end of last year we took up the annual guidance and licensing is something that we have not done before, at least not from an organic point of view which we brought down after the acquisition of RivieraWaves and adding the connectivity side and Bluetooth and Wi-Fi, and this is the first time we are doing it on our own so to speak. And that's when we talked about the 10% increase somewhere between $34 million to $36 million. There is no doubt that the first part of the year is starting strong in licensing. With that said, true for every IT company, this is also the tricky part of the business because you don't have that booked in hedge for Q3 and Q4, and you have to bring those deals and you have to get to these levels. So I think for now we will continue with what we have done in the past to try to achieve our goals and to come up in license these new technologies and that's a key factor to it and Q3 or Q4 will stay at these levels or go down a little bit in order to make that $34 million to $36 million. We will see, but at least the market that we talked about earlier and the interest for all the different type of technologies is quite strong. So I am happier to be at this side of the table and this side of the answer versus being on the other side. So we will see how things develop.

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Matthew D. Ramsay, Canaccord Genuity Limited, Research Division - Principal and Senior Analyst [17]

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And just the last question from me. OpEx has been ramping up and actually I applaud the spending again some of these exciting new opportunities, but how should we think about OpEx growth particularly R&D growth for the rest of the year and just the growth profile you guys want to have us think about longer term for the spending side of the business?

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [18]

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Sure, I think this falls in very good with the prior question in that the increase in licensing and we talked about that in the last earnings call. It is also a lot of investment in new R&D and this is a unique year but we did guide higher R&D of about $5 million which is not our -- was not our common practice in the past. Some of you recall those are little bit due to lower grant payment for just an R&D project but the majority is related to more engineers and more EBITDA and related expenses. I think we are okay there, at least the next quarter or 2. I see that the $13 million non-GAAP number as being something that's a target for us to keep and not go and grow behind it -- above it. And if you manage that, then we are okay with that annual model and the like. So for now obviously investment is going into this new work of customization and new technologies and customers that we are bringing in and this is where we are spending the dollars and coming up every once in a while with new products around it. So I think we are good with Q1 and Q2 is similar type of expense levels.

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Operator [19]

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Our next question is from Matt Robison from Wunderlich.

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Matthew S. Robison, Wunderlich Securities Inc., Research Division - Analyst [20]

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First can you put out a little bit of perspective on the cadence for new applications and royalties this year when you expect to see that start to ramp and some color on India and China, what are you seeing some your licensee that is particularly well positioned in those markets? And then I didn't catch what you said what are you expecting to see anything from the chief scientist in the back half that will be offsetting the expenses.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [21]

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So I will start with the business and let Yaniv respond on the chief scientist. So in terms of India, China; India is most of the people in the low end those that specialize in the low-end market are growing there. LTE is becoming almost a mandatory requirement by regulator even though they don't have the network, it is a mandatory requirement. I mentioned in my prepared remarks the LTE feature phone. I see also Qualcomm coming with LTE feature phone. So there is a potential for a LTE feature phone in this respect so -- and that's when it comes to the (inaudible) side. When it comes to other products that's coming to the market, so we have our first smartphone coming with our vision technology. We believe that vision in smartphone is going to be a mainstream because that's the way to get differentiation on the camera and across the street there is the VR, the AR or augmentation reality and these kind of use case and applications. The demand for vision processing will increase. So we see Chinese companies coming and doing it and we see western company also I think processors in this respect. So we are going to see royalties coming from vision this year in the smartphone space and this become bigger and bigger as we go to 2018 and onward.

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [22]

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On the grant payment, around the May, June timeframe where all the different annual committees that exaggerate the different funding projects that were submitted, so I think next quarter we should have more color on what was approved and what was not, and we will know a little bit better. For now, Q1 is always the slowest quarter of the year in the grants and this is not the case this year as well.

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Operator [23]

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Our next question is from Joseph Wolf from Barclays.

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Unidentified Analyst, [24]

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It's [Accara] for Joseph. Just a couple of quick questions. First, I guess regarding your involvement in automotive space with ADAS, how many -- do you have other -- I know you mentioned the agreement that you had announced in the comments, but do you have other partners on that initiative at all and I guess what types of partners are integrated, I guess, or you're working with? And you mentioned commercial deployment on that agreement within the next year, does that translate to revenue recognition within that timeframe or when does that opportunity sort of begin to generate revenue for you? And then I have one follow-up.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [25]

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So, okay, when it comes to automotive revenue there is a few key partners we announced at the beginning of the year (inaudible) for our technology for in the automotive space in the prepared remarks I mentioned we are doing with one with existing customer that has a product in advance design stage and here we expect royalty coming from this specific customer in early [2018] commercial deployment in cars that will be sold and there is a new project coming and by the way this is becoming a routine, once you get into the automotive space and you get the credibility then it's much easier to win new projects and to have a prolonged business in the automotive space. Do you have another question?

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [26]

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So, revenue part is the royalty, the licensing fee though is already been recognized and already signed these deals. The royalty is something that should start to contribute as Gideon said in 2018 from that specific customer and there will be few others that hopefully will follow a bit later on.

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Unidentified Analyst, [27]

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So, early '18 is when we are looking for, okay. And then just a follow up on Matt's question from earlier in terms of seasonality on the royalty side of business more broadly and thinking about that relative to the timing, on some of the higher profile smartphone wins that you had, does that again tend to mirror the amounts or the rollouts of those new high profile smartphones so that you would be seeing that start at the same time?

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Yaniv Arieli, CEVA, Inc. - CFO and Treasurer [28]

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So, remember that we report our royalties one quarter in year so whatever happens now in Q2, or Q1 whatever happens in Q1 and we saw some of the numbers out there and some of the big semiconductor companies in the industry guide down for -- report down for the first quarter, that's what we report in Q2 and so on based on the size, we always have that for many years, it's a seasonal effect that's common in the industry, it's even stronger in the demand baseband if you look at all the Bluetooth public companies that reported so far, all the numbers for Q1 or post Christmas, no new releases usually too in the winter time and volumes are lower. So, that's exactly what we -- will be transparent to us in Q2 royalties, hopefully a quarter after we will see the uptick in that -- the positive seasonality in Q3, we will have to wait and see down the road to report, as we mentioned, there are a lot of moving parts and timing and inventory and the buildup, the ramp ups of SKUs, so that's what the exception -- last year was an exception in Q2 on the royalty side, all the prior years if I look back many, many years, this was pretty common practice.

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Operator [29]

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Our next question is from Sujeeva Desilva from Roth Capital.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [30]

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Nice job on the quarter here. The shares popped up in base spent of 42% here from 36%, I am wondering if more share gain is implied in the 10% to 20% growth this year that you target or what the other swing factors might be in the high end there versus the low end?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [31]

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Well, it's almost a $1 million question. The engines are ready to -- it's very difficult in the smartphone market to predict the -- how things, so it's a market that is extremely competitive and we have to take advance at the time and see whether these are sustainable and we will have to see. But as I mentioned in my prepared remarks, the LTE market is almost untapped 25%. So, this is where people are going to, this is where we have the technology, technologies and that is very competitive and there are few players that don't use our technologies and they can get their own share of the world, so we have to see.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [32]

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Okay. Fair enough. And then can you update us on the progress of the wireless infrastructure, the wins you have and whether they are ramping to your, tracking towards your expectation for ramp in the second half, any update there will be helpful.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [33]

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In fact we already got the first royalty with both our customer in baseband space, it was earlier than we anticipated and this looks promising and we believe that next year it will be even more noticeable.

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Sujeeva Desilva, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [34]

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Good to hear. And then lastly in the automotive market you talked about ADAS and you talked about autonomous driving, can you talk about the content difference per car for you when you go from ADAS up to fully autonomous driving, what the delta might be there?

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [35]

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Yes, the content is high, the AD or autonomous driving architecture when it comes to our context it's multi-core play, you cannot do all these in one profit zone and it is multi-core, which means higher content and with all the implications, but it's -- in the AD space it is still early days there, this is our next objective. Right now, we are in the ADAS space, which is -- could be a front-facing camera, it could be a rear camera, all those things that we have a one processor, the royalties there is also higher than we know from others in the space and this is where we plan and anticipate to have first royalties from the commodity space early next year.

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Operator [36]

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And our final question for today is from David O'Connor from Exane BNP Paribas.

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David O'Connor, Exane BNP Paribas, Research Division - Research Analyst [37]

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Thanks for taking my question. I have got a question on the low end in China and the weakness that we are hearing both in parts of the smartphone markets. Can you maybe talk a bit about your positioning there and if that at all is factored into your royalty guidance for the full year, that 10% to 20%. That's my first question, and a follow up.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [38]

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David, you asked about the low end space in China on smartphone, right?

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David O'Connor, Exane BNP Paribas, Research Division - Research Analyst [39]

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Yes, that's correct.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [40]

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Okay. So, we don't see, honestly, and matter of fact, we don't see any weakness in the low end space on the contrary, this is a -- it's a growing space. When you say China you have to speak about the domestic market versus the export market because a lot of Chinese OEMs are exporting to India and the other areas of emerging market there. And this is definitely a growing space and expected to grow, yes, it's a competitive market, we have a few customers and also there is big newcomer using our technology as well. So, if you are asking me whether this is -- we are expecting to grow, the answer is yes.

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David O'Connor, Exane BNP Paribas, Research Division - Research Analyst [41]

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Okay. Great. And maybe a follow up on the neural network processing, this week with the embedded vision so much the top thing, we are seeing some announcements from peers, Cadence and others optimizing processors for neural networks, and can you talk just more a little bit more about your competitive positioning there? And I am not sure if you have done any benchmark work versus peers that you can share with us or just the -- maybe an overall comment on the competitive environment there, it will be helpful.

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Gideon Wertheizer, CEVA, Inc. - CEO and Director [42]

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Yes, we also saw this announcement of the competitor Cadence, is a competitor of us in the vision space. Their product is, I would call it a neural network is a software base, our approach is more a hardware software base. The hardware software based approach is how to do it and this is our advantage because this hardware software approach is advanced, the two main issues when it comes to (inaudible) meaning that you have to, in real time, as fast as possible to detect objects, whether it is an autonomous car or whether it's a drone that you don't want the drone to crash. So, with the hardware based -- hardware based approach you get first of all, faster response time, and you get lower power which are very significant especially when it comes to heat in cars or in drones, it not just a matter of battery, it's also a matter of heat. So, this is the way to deliver this. This is our advantage, this is our high entry (inaudible) that we manage by doing these kind of things. Our competitors are going in a software based approach, which is much easier to do for us, it's even easier, but this is not the right things to do in our opinion.

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Operator [43]

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

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Richard Kingston, CEVA, Inc. - VP of Market Intelligence, Investor & Public Relations [44]

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Thank you, Denise. Thank you everybody for joining us today and for your continued interest and support of CEVA. We will be attending the following upcoming events and invite you to meet us there. Jefferies Technology Group Investor Conference on May 10th in Miami, Oppenheimer's 18th Annual Israeli Conference in Tel Aviv on May 17th, the Benchmark Company one-on-one conference on June 1st in Chicago, and the Jefferies Israel Tech Trek, June 4 through 7 in Tel Aviv and Jerusalem. Please visit the Investor section of our website for further information on these events and other events that we will be attending. Thank you and good bye.

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Operator [45]

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