CEVA, Inc. (CEVA) Earnings

Management highlights

- Core Quarterly Performance Highlights * Total Q2 2026 revenue grew 13% YoY and 7% sequentially to $29 million, with trailing 12-month licensing and related revenue up 13% to ~$70 million. * GAAP gross margin hit 87% and non-GAAP gross margin hit 88%, in line with guidance. GAAP operating loss improved to $2.1 million from $4.5 million YoY, while non-GAAP operating income grew to $3.1 million from $0.8 million YoY, with non-GAAP operating margin expanding to 11% from 3% YoY. * 10 new licensing agreements were signed in the quarter, including two with first-time customers and two direct OEM deals, with a trend toward broader, deeper customer collaborations. - Key Industry Strategic Trends * Growing migration of AI intelligence from cloud to the smart edge is increasing demand for CEVA's high-performance connectivity, sensing, and AI technologies. The quarter closed a strategically significant AI NPU licensing agreement with a leading global AI and computing platform company, a new customer category for CEVA (previously AI customers were primarily semiconductor firms and OEMs). * Customers are increasingly adopting complete border platform solutions instead of individual IP blocks, to reduce development risk, accelerate time-to-market, and free internal engineering resources for product differentiation. - Product and Business Expansion * CEVA expanded its sensing portfolio with the launch of Microsoft-certified RealSpace Elevate embedded application software, entering the PC gaming audio market for the first time. * Activity was broad-based globally, with connectivity customer engagements across North America, Europe, China, and Asia-Pacific. Existing customer relationships continue to expand as clients adopt additional CEVA technologies over time. * The royalty business is becoming increasingly diversified, with growing contributions from automotive AI alongside the core connectivity franchise.

Guidance

- Full-year 2026 guidance: Management raised the revenue growth outlook to 13-15% year-over-year (from the prior 12% growth expectation) reflecting strong first half performance and solid customer engagement pipeline. The second half of 2026 is still expected to be stronger than the first half, in line with normal seasonal trends. - Full-year non-GAAP operating income is now expected to grow ~70% year-over-year, and non-GAAP net income is expected to grow ~50% year-over-year, both upward revisions from prior guidance. Full-year total non-operating cost of revenues and operating expenses are still expected to increase ~8% year-over-year, maintaining prior guidance. - Q3 2026 specific guidance: Revenue is expected to be between $30.5 million and $34.5 million. GAAP gross margin is expected to be ~87% and non-GAAP gross margin ~88%. GAAP operating expenses are expected between $28.2 million and $29.2 million, while non-GAAP operating expenses are expected between $22.5 million and $23.5 million, roughly flat sequentially. Net financial income is expected to be ~$2 million, and income tax expense ~$1.9 million.

Segment performance

CEVA reports two core revenue segments for Q2 2026: 1) Licensing and related revenue: Grew 21% year-over-year to $18.2 million, accounting for 63% of total company revenue. This marked the strongest licensing quarter in three years, driven by broader platform customer engagements. 2) Royalty revenue: Increased 1% year-over-year and 17% sequentially to $10.8 million, accounting for 37% of total company revenue. Growth was driven by strong wireless connectivity performance, ramping automotive AI programs, and smartphone market share gains. By device shipment volume: mobile handset modem shipments were 61 million units (11% of total shipments, up from 55 million units YoY); consumer IoT shipments were 487 million units (up from 409 million units YoY); industrial IoT shipments were 19 million units (down from 24 million units YoY, though industrial royalty revenue grew 7% YoY due to a higher-value product mix). By technology: Bluetooth shipments were 295 million units (down 16% YoY); cellular IoT shipments hit a quarterly record of 68 million units (up 3% YoY); Wi-Fi shipments were 80 million units (up 28% YoY). Total device shipments grew 16% YoY to 567 million units.

Risks & headwinds

- Memory pricing dynamics and broader industry supply chain constraints remain key variable uncertainties that could impact performance. - Foreign exchange volatility creates headwinds for net financial income, as seen in Q2 2026 when net financial income came in below guidance at $1 million due to impacts from Israeli shekel movements on lease obligations. - Geographic revenue mix can create variance from income tax guidance, as Q2 2026 tax expense came in slightly above guidance due to the geographic mix of recognized licensing and royalty revenue.

Analyst Q&A

• Q: Are we seeing a long-term trend of large customers bringing wireless design in-house, and what does this mean for CEVA? /

  A: Management confirms this is a growing, positive trend that aligns perfectly with CEVA's strategy of offering complete, production-proven turnkey IP solutions. Complete platform deals deliver meaningfully larger upfront licensing values and higher future royalty per unit than individual component IP sales. The model also increases customer stickiness: customers rely more heavily on CEVA's expertise, and the full solution offering makes it far more likely that customers will choose to license IP from CEVA rather than developing technology in-house. Recurring new licensing revenue also comes from regular wireless technology standard upgrades, further reinforcing long-term stickiness.

• Q: Will deeper customer hardware-software engagement lead to more custom IP, and what impact will this have on royalty rates? /

  A: Management confirms growing market demand for custom solutions, which aligns with CEVA's current investment roadmap. Custom, complete, deeply integrated engagements deliver meaningfully higher per-unit royalty rates compared to individual standard IP blocks. The recent strategic high-profile AI NPU deal with a large platform provider is a key example of this higher-value custom model.

• Q: What is driving recent smartphone share gains for CEVA, especially in the entry-level segment? /

  A: Entry-level smartphone royalty recovered strongly sequentially in Q2 2026, with key Chinese customer Unisoc gaining market share against competitors as it expands from volume 4G into higher 5G content, which delivers higher ASPs for CEVA. Unisoc recently won multiple new design wins with major brands that previously relied on other suppliers, and large U.S. OEMs are also shifting to more in-house design models that are expected to deliver additional share gains for CEVA in the second half of 2026.

• Q: Has the acquisition of ARC by GlobalFoundries created any new momentum for CEVA's NPU licensing business? /

  A: Management confirms the acquisition is a tailwind for CEVA's NPU and AI product lines. The competitive landscape has become more favorable for CEVA, which focuses on delivering complete AI IP platforms, and the transition has already helped the company secure the strategic AI NPU deal signed this quarter, particularly improving competitiveness in North American and Western markets.