CEVA, Inc. Q1 FY2026 earnings call

Core Strategy Alignment

• Aligned with key industry trends: convergence of edge AI and wireless connectivity, rising system complexity, and growing demand for integrated solutions that reduce time to market
• Pursues a "connect, sense, and infer" strategy that capitalizes on the projected growth of 40 billion annual intelligent-connected device shipments by 2030 and the shift to distributed hybrid edge AI

Key Business Wins and Product Updates

• Secured a major full-stack Bluetooth HDT (High Data Throughput) solution licensing win for the upcoming Bluetooth 7 standard with a leading US semiconductor company, expanding an existing customer relationship; this win includes internally developed RF and full system software, marking a shift to higher-value integrated solutions
• Expanded an existing satellite NTN (Non-Terrestrial Networks) customer relationship from DSP cores to a more integrated baseband processing solution, capitalizing on the emerging NTN market expected to scale to billions of devices
• Launched next-generation UWB platform and secured a new customer win with a major US-based MCU provider, expanding an existing multi-technology relationship; UWB growth is driven by demand for precise location awareness in industrial, automotive, and enterprise use cases
• AI business now represents over 20% of total licensing and related revenue, with two new licensing agreements signed in the quarter; the company's Renaissance R-car V4H platform integrating SEVA's AI DSP and accelerator entered mass production in the 2026 Toyota RAV4, marking SEVA's first high-volume automotive AI deployment
• Announced a collaboration with NXP to integrate SEVA's AI DSP and accelerator into NXP's S32E2 and S32Z2 software-defined vehicle processors
• Total 14 licensing agreements signed in the quarter, including additional wins for Wi-Fi 7, Wi-Fi 6/Bluetooth combo, and other connectivity projects
• Lenovo launched its latest ThinkPad headset powered by SEVA's RealSpace spatial audio with head tracking, building on prior consumer brand wins

Strategic Trends

• A clear pattern of existing customers expanding their use of SEVA IP, with growing adoption of more integrated system-level solutions that increase value per design, strengthen long-term royalty streams, and improve margins
• Wi-Fi and Bluetooth remain durable multi-year growth drivers, with overlapping technology cycles (current generation Wi-Fi 6/Bluetooth 6 and next-generation Wi-Fi 7/Bluetooth 7) supporting sustained unit growth and margin expansion; growing adoption of combo chips integrating multiple SEVA technologies increases value per device
• AI-driven royalties continue to grow, with early high-volume deployments demonstrating long-term contribution potential across multiple end markets

Total Q1 2026 revenues increased 11% year-over-year to $27 million. Licensing and related revenue grew 18% YoY to $17.8 million, accounting for 66% of total revenues. Royalty revenues were flat YoY at $9.2 million, representing 34% of total revenues. Non-mobile royalties grew 8% YoY, partially offset by softness in smartphone royalties. Total unit shipments of SIVA power devices reached 458 million units, up 9% YoY:

• Mobile handset modems: 46 million units (10% of total shipments), down from 49 million units YoY
• Consumer IoT devices: 394 million units, up from 337 million units YoY
• Industrial IoT products: 18 million units, down from 34 million units YoY; however, associated industrial IoT royalty revenues grew 19% YoY due to a higher mix of higher ASP products including 5G wireless infrastructure and automotive AI
• Local shipments: 206 million units, down from 233 million units YoY
• Cellular IoT shipments: 66 million units, up 38% YoY
• Wi-Fi shipments: 91 million units, a record, up 158% YoY

• Management upgraded full year 2026 guidance, expecting total revenue growth to land at the top end of the prior 8% to 12% range over 2025, with the typical seasonality profile of lower growth in the first half and stronger growth in the second half, subject to memory pricing dynamics and supply conditions
• Combined total costs (cost of revenues plus operating expenses) are expected to increase approximately 8% over 2025, as the company continues investing to support future growth; incremental revenue is expected to flow to the bottom line
• Non-GAAP operating income and non-GAAP net income are now expected to increase 40% to 50% year-over-year, an upward revision above prior expectations
• Q2 2026 guidance: total revenues expected in the range of $26 million to $30 million, representing sequential and year-over-year growth; GAAP gross margin expected to be 87%, non-GAAP gross margin expected to be 88%; GAAP operating expenses expected in the range of $27.7 million to $28.7 million; non-GAAP operating expenses expected in the range of $22.2 million to $23.2 million

• Near-term memory availability constraints and elevated inventory in lower-tier smartphone segments negatively impacted Q1 2026 mobile royalty revenues, though management views these dynamics as largely timing-related
• Foreign exchange headwinds from the strengthening of the Euro and Israeli shekel against the US dollar create pressure on operating expenses
• Memory pricing and supply volatility could impact end market demand and customer production plans through the rest of 2026

Q: The Bluetooth HDT win appears to be a step up for your value per design strategy with in-house RF IP. Can you discuss the RF offering, replicability across other technologies, and royalty levels relative to traditional licenses? / A: This is a full end-to-end system solution including internally developed RF, an area SEVA has invested in over the past two years. The full integrated solution cuts customer validation time, reduces development risk, and encourages customers to shift from internal development to licensing SEVA's complete offering. The RF architecture will be expanded to other wireless technologies including Wi-Fi and UWB as part of the broader integrated solution strategy. Because of the higher delivered value, this integrated solution delivers meaningfully higher per-unit royalties than traditional discrete IP licenses, supporting long-term royalty growth.

Q: Can you update on the penetration of Wi-Fi compared to Bluetooth, and whether UWB will follow the same growth trajectory or remain niche? / A: SEVA is already highly penetrated in the Bluetooth market. Wi-Fi is in a strong ramp up phase, with Q1 2026 hitting an all-time record shipment volume driven by transitions to Wi-Fi 6 and new customer production ramps from 30+ Wi-Fi licenses signed over the past three years. Wi-Fi is expected to continue growing past 500 million annual units, becoming a large comparable business to Bluetooth. UWB is an earlier-stage technology seeing growing adoption in smartphones and location-based use cases, with the first major new customer win this quarter and more expected to follow. Bluetooth-Wi-Fi combo chip volumes have doubled year-over-year, with higher average selling prices than discrete solutions, further supporting revenue growth.

Q: What is your current approach to capital allocation and M&A, and what technology areas will you target? / A: M&A is a key strategic focus to scale SEVA, and management maintains a disciplined, selective approach. All targeted acquisitions will complement SEVA's existing smart edge position in connect, sense, and infer technologies, with a focus on IP that expands the company's portfolio and accelerates organic growth.

Q: Is there any plan to extend the new Bluetooth RF IP to other connectivity products like Wi-Fi, and what applications are driving growth for NTN satellite communication beyond smartphone messaging? / A: The plan is definitely to expand this full-stack integrated RF architecture across SEVA's entire wireless connectivity portfolio, with Wi-Fi being the next natural step after Bluetooth. For satellite NTN, the largest growth potential is in emerging non-mobile applications, including industrial IoT, logistics, and remote connectivity for regions with limited terrestrial infrastructure, as device makers look to build end-to-end connected service offerings beyond basic smartphone messaging.