Good morning and welcome to the CEVA Second Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Richard Kingston. Please go ahead, sir.

Thank you. Good morning, everyone and welcome to CEVA's second quarter 2014 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. Yaniv will then cover the financial results for the second quarter of 2014 and provide guidance for the third quarter. 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. These forward-looking statements include, our financial guidance for the third quarter of 2014, confidence in our licensing pipeline including the combined DSP cores and RivieraWaves WiFi IP, our ability to expand beyond the cellular baseband market, market exits anticipated design wins, market penetration and mass production time tables by CEVA's customers and their impacts on our revenues. And anticipated costs and benefits associated with the RivieraWaves acquisition. The risks, uncertainties and assumptions include the ability of the CEVA DSP cores to continue to be strong growth drivers for us. Our success in penetrating new markets including connectivity and maintaining our market position in existing markets, our ability to successfully integrate the RivieraWaves business and retain its former employees. The ability of DSP products incorporating RivieraWaves Wi-Fi and Bluetooth technologies as well as other new products incorporating our technologies to achieve market acceptance, the speed and extend of the expansion of the 3G and LTE networks, 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 those 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 speaks as of their respective dates. With that said, I'd now like to turn the call over to Gideon.

Thank you, Richard and welcome everyone. Revenue for the second quarter was lower than originally projected, primarily due to a longer than anticipated signature process to conclude an approximately $1 million licensing agreement. Our guidance and projection assume this deal would close by the end of the quarter, but the agreement was executed a few days after quarter end and will be recorded in our third quarter revenue. Overall we are seeing good licensing pipeline and improved visibility for the upcoming quarter. Our confidence in the pipeline is reflected in our third quarter guidance which forecast an all time record high for licensing revenue. Yaniv will elaborate on this shortly. Total revenue for the third quarter was $9.2 million. Licensing and other revenue was approximately $4.4 million and royalty revenue was approximately $4.5 million. During the second quarter, we signed 11 new licensing agreements. Six of the agreements were for CEVA DSP cores and platforms and five for connectivity products. Cellular application includes LTE advanced baseband, audio, Bluetooth and SSD drives. Geographically, nine of the agreements signed were in APAC including Japan and two were in the U.S. In the second quarter we continued to execute our expansion strategy beyond cellular baseband space. With 10 out of the 11 agreements executed during the quarter targeting non-baseband applications. Of particular note five such agreements target audio applications this customer will be deploying our audio DSP into a range of end markets including smartphones, automotive infotainment, [tablet] (ph) and game console. In the baseband space, we secured new design-wins with a key customer who claimed to use our DSP for next generation LTE advanced technology. Also we made substantial progress with a number of key prospects across all our product lines including the RivieraWaves connectivity LTE and plan to conclude number of…

Thank you, Gideon. I will start by reviewing the results of our operations for the second quarter of 2014. Revenue for the second quarter was $9.2 million lower than originally forecasted primarily due to a longer than anticipated signature process to conclude an approximate $1 million deal that will exclude a few days after quarter end. The revenue breakdown is as follows; licensing and related revenue was $4.4 million representing 47% of our total revenue, 29% lower as compared to the comparable quarter in 2013. Our royalty revenue was $4.9 million reflecting 53% of our total revenue and down 27% from the prior year. Quarterly gross margin was 85% on U.S. GAAP basis and 86% on non-GAAP basis. Our non-GAAP reported gross margin excludes approximately $56,000 of equity based compensation expenses. Our total operating expenses for the quarter were $10.1 million at the low end of our guidance. Our OpEx includes an aggregated equity based compensation expense of approximately $1.3 million and $0.3 million related to legal and tax cost associated with the RivieraWaves transaction. Our total operating expenses for the second quarter excluding equity based compensation and deal expenses were $8.6 million, at the low end of our guidance. U.S. GAAP loss for the quarter was $1.5 million and fully diluted loss per share was $0.07. This compares to $2.2 million of net income and $0.10 per share for the second quarter of 2013. Our non-GAAP loss of $71,000 and fully diluted loss per share was zero as compared to the same quarter which we recorded $3.4 million of net income and $0.15 fully diluted net income per share. These figures exclude approximately $1.3 million and $1.2 million of equity based compensation expenses, net of taxes for the second quarter of 2014 and 2013 respectively. Other related data. Shipped…

Thank you very much. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Gary Mobley of Benchmark. Please go ahead, sir. Gary Mobley – Benchmark: Hi guys. Thanks for taking my questions. In your prepared remarks you commented a little bit about what’s expected to drive the sequential revenue growth in royalties in 3Q. I was hoping to delve a little bit deeper into that. Because if you look at two of your top three worthy contributors Intel and Broadcom shipments in the June quarter were not all that good. As you probably heard on Broadcom's conference call, they expected rather sharp sequential decrease in the baseband revenue. So I'm just hoping to get a better understanding what’s driving the royalty revenue growth in 3Q and perhaps trying to gauge the prospects for continuing to grow afterwards?

Hi Gary, it's Gideon. For a while we're speaking about the fundamental in the market because overall as you know the handset market is in turbulence. There is Intel issue, there is Broadcom issue, Qualcomm is facing the issue and there is in case we are in. The fundamental portfolio, one is the market has got into a low cost front whether it’s 3G, whether it's LTE. We are not seeing LTE we are seeing ramp in the 3G for the first time users in China and other places and that’s a positive contribution. The other thing is what we mentioned Broadcom and Intel what they are losing is basically picked up by another customer of ours and in the feature front space and this customer is also enjoying for other left over people that left the market [SKL] (ph) and what’s happening is that the front is that discussed in our shipping is not the lower end future phone. It's kind of edge for some colleagues smart feature phone and however. So overall it’s more than offset trend that we're seeing. With regard to the sustainability of these trends, as we pointed out in the prepared remarks, still there ups and downs. We never know how deep, how low can Intel go with this, they are already there. But LTE is where we are going, we are expecting to see a major contribution not just from the non-customer but there are others that are doing progress and should build the market between now and 2015. And you just – just to add to that, that the overall we are see enough royalty report to make sure that our guidance sticks and we should not miss that based on the reports or estimates that we have already received. So we are quite firm with this update for the next quarter. Gary Mobley – Benchmark: Okay. Looking at your non baseband royalty revenue or specifically the units, you posted a nice year-over-year increase in Q1, a very sharp year-over-year decrease in the just reported June quarter. When might we see a return to year-over-year growth in non baseband related revenue? Then perhaps further growth in non baseband excluding gaming devices?

At least for now the non baseband trends will be seasonal. For Q1 eventually it was seasonally weak. Q2 the non-baseband guide consumer electronic quote unquote “they're waking up come the Christmas or we expect to tell the Christmas this will grow”. Now we have signed up lot of non-baseband, not naturally consumer but the non baseband handset customers in the last few years. Based on what we are tracking today at least dozens of them will get into production sometime in the second half of 2016 and this will be fresh royalty stream coming from this customers. Gary Mobley – Benchmark: Okay. Last question I have relates to your licensing revenue guidance. Appreciate the fact that licensing revenues guided to be at a record level but I'm trying to get a sense of the organic growth there. What is expected to – what is CEVA's existing business that DSP and what was their on the connectivity side. What is that expected to contribute to Q3 license revenue guidance. And then as well looking at the metrics on Q2 licensing revenue, you struck 11 license deals that’s I think about 4 or 5 above the norm does indicating your average deal size is pretty small. Was that a function of five to six DSP deals the [indiscernible] or audio applications? That’s it for me. Thanks.

Okay. Let’s take it one at a time. When it comes to the licensing focus that we focusing. I will tell you that -- and it relates to what we said in the past, we are having much broader product line and as a result we are addressing a large customer base. Now the license focus for this quarter is mainly on the DSP side because of the broader product line you mentioned region communication and a concentration of deals which we work during the second quarter as I mentioned in my prepared remarks we made significant progress on this respect. So, we do expect contribution from the connectivity side from VOA. We're still learning setting up the organization. So we are not in a position to provide more color about how we are going to have. We have to go to some kind of learning curve. Next year it will be more as you mentioned 25%. So for the third quarter it will mainly be speed uptick good environment I would say. The other question which I forgot… Gary Mobley – Benchmark: Yeah…

The number of deals and the size of them. One of the characteristic I should say, of the deals that we are doing outside of the basement, single use bin, few hundred thousand dollar per deal and that’s been cumulate so on one hand we have larger customer progress, on the other hand their preference is to go to a single use and that’s the reason that we get this lower average I would say licensee because it’s more single use. But from a royalty standpoint keep in mind that whether it's multi or a single use we are here to sign this and those guys should single use guys should generate royalties as well. Gary Mobley – Benchmark: All right. Thanks for taking my question guys.

Thanks Gary.

And our next question comes from Matt Robison of Wunderlich Securities. Please go ahead.

Hey, thanks for taking my question. I will continue on Gary said – it looks like the royalty ASP may have gone down in the quarter still looking at some of the numbers, but maybe give us a little background for that and then the single use ASP that’s pretty clear. I think at one time at least we thought that the royalty value for some of these non-baseband applications might be -- might carry a little bit more ASP than corporate average. Should we still be thinking about that along those lines and I have a couple of follow-ups?

Hi Matt. Good morning. If I compare the sequential decrease in the ASP from the first quarter to second, is allowed to mix of products which are non baseband and you said correctly they are higher ASPs. If I look at just the mobile side of the business from Q1 to Q2 it hasn’t changed. No price erosion, nothing much whatsoever, even if I compare this second quarter to the first quarter -- to the second quarter of last year, we see a slight increase a few percent of a slight increase on the handset ASP. So we're not really experiencing any ASP issues currently in the baseband business. It's only because of the mix of much slower post Christmas, normal seasonality from the non-baseband side. Going forward, you're right, this hasn't changed. When you look at some of the non-baseband application whether it's the infrastructure, whether it's the imaging, whether it's the WiFi and the new connectivity, we know [relative] (ph) should there higher ASPs than we have today, these are different markets, different sizes, different applications and much less crowded than some extend and what we have been seeing over the last two years in the baseband market. So, we are looking forward to that with a continued mix in baseband. When you talked about LTE and LTE deployment and low cost LTE is either significantly still higher ASPs for us than the traditional feature phones and even smartphones.

Gideon, you talked a little bit about Intel and apparently not really expecting the ramp on some of that LTE stuff until next year I guess it would be maybe your second, third quarter royalties next year when you start to see that. Correct me if I am wrong on that. And then maybe give us a little bit of your early view about the seasonality - seasonal tax might be in the fourth quarter. Is there – sometimes we've had situations where those product transition that have offset some of the normal holiday consumer spending. Do you envision that kind of a scenario at this point?

When it comes to Intel, for me, we are – from where we are it’s hard to know when we will finish this certification for the LTE advanced. They are playing with their XMM 7260 is more like in the flagship model, the high end is bunch of customers they already announced, Samsung, Lenovo, all those PC guys outsourced their group play in the tablet as well. But they need to finish up. I am not so sure about second half, if it goes until late in 2015, they are staying above between Q4 and Q1 next year and the implication from outside. I'm not sure - I didn't mention the invention in our prepared remarks but people probably heard about their activity with Rockchip today in China most of the tablets are now cellular connected. This is a huge add-on to the modern business. Overall I saw report from Ericsson speaking about $900 million units of tablet connected device in 2019. And that's where Intel is focusing with Rockchip and SoFIA platform which is the integrated X86 in modem. Going into Q4, it's hard to say where are we going to be. There are still these headwinds. I'm not so sure. I feel that this is something that is not - will not be as strong as it used to be. I think that most of it is behind us, the contribution of Broadcom baseband to our cellular is not that big. It's something that soon will not be even noticeable and as I said Spreadtrum is taking this product anyway and that's, - becomes more significant. Consumer product as I said to Gary, until second half of 2015 we'll move in a seasonal Form factor.

So, now you've got quite a bit of royalty concentration now it seems with a privately held company. What's happened with the reporting of the information for the, how has that affected your visibility?

No, not at all. We continue -- the license agreement hasn't changed. Once quarter we get the report very detailed, where we know exactly what's going on like with any other customer, it's common practice for us in the industry and we haven't seen any changes around that.

And when is the Chief Scientist brand coming this year?

It vary by different payments, there is an upfront payment that's usually is either in the second or third quarter, we got some in Q2 and we should be getting some in Q3. And then we get on a quarterly basis based on the achievement and the percentage of the completion of the different tasks. So, it's usually around Q2, Q3. This year it's – I'd say probably equally shared. Matt, one thing that I want to go back to your comments about concentration. Here's the thing, when it comes to the feature phone and the transition of the feature phone, there are two guys playing there neck-to-neck MediaTek and Spreadtrum. In the 3G Wideband CDMA I think these two guys will dominate the space and when it comes to LTE and now the China is going there, it's not going to be -- at least for now it's not going to be concentrated. We know Samsung, we know Spreadtrum, we know Litco, and there are bunch of guys that will get there either through the tablet space or through the handset space. So, it’s going to be at least for the next two years a very, there’ll be plenty of suppliers or handful.

That's Interesting. When you get in fact, given the cash, operating cash for the deprecation in CapEx please? And that’s it for me for now.

CapEx was about $200,000, depreciation about $300,000 and OpEx, cash flow from operating was negative this time around about $3.6 million.

$3.6 million?

Yes.

And what do you expect to have – have a much CapEx associated with RivieraWaves?

No, I think it is very similar business model, maybe some upfront IT related to get them up and working around our system. And equivalent setups in security mechanism. But other than that, they are using the same video, they’re using similar type of tools and I don't see such leading tool to spend too much around that part of the business.

How much of your apparently $8.8 million plus in licensing in the third quarter do you think will come from Riviera?

I think Gideon has touch upon that that we’re still looking into it. We’re still working the revenue recognition, some of the past deals. And still have feature milestone and some future work around them that we’ll need to figure out how and when to recognize it, some of them have acceptance criteria that will take a bit longer to recognize, when we actually reach those milestones. So we do see initial royalty, the bulk of the growth in licensing other than the $1 million that's left and that's part of the guidance is mainly around the DSPs. So, that we know and we have pretty good control over.

And the next question comes from Joseph Wolf of Barclays. Please go ahead, sir.

Thank you. I just want to make sure I understood first something that Gideon said during the call. There was a number about 400 million units and then the 25% number. I want to make sure I understood the, what those two were referring to exactly.

We refer to the objectives that we are setting to the connectivity, activity that we have which is based on the RivieraWave. We expect, we are setting an objective to be - to ship 400 million royalty billing connectivity devices on top of our baseband, on top of our vision, on top of our DSP product by 2018. So in order to achieve these bills, we have to sign-up licensing agreements. Let's say in the next 2, 2.5 years to let them be in this volume. And for this reason we set an objective to have 25% increase in our historical licensing revenue starting from 2015. Our licensing, - historical licensing revenue is between $5 million to $6 million per quarter.

Perfect, thank you. When you look out there, you had also mentioned having about 12 products that you think you're going to be hitting by the second half of 2015, is that what you said?

Yes, that's what Gideon said. Yes.

Those are fresh products. And they are all non baseband. How do you think about, given the size of those licensing deals, how do we think about the yield in terms of how many units and ASPs compared to the traditional baseband business, if we think about 2015, half of that getting some ramp on few of those products, what kind of yield in terms of units and price can we think about?

Well, I should say the following, it’s certainly not at the level of the baseband per customer I mean. The baseband is the largest market on earth and we are speaking a large different, large set of customers, different application, satellite communication, audio, and stuff like these. So, we are not in a position because these are new customers, we are not, we do not have familiarities with them on how they succeed in the market. So, one thing, if you don’t think about per customer baseband volume which is could be 100 million units yield. We are not speaking about this size. We have to wait for those customers to get into production and then start the most if you like.

Could all this together be an incremental, you talked about 25% growth over historical. By the end of 2015 we had a 10% growth over some sort of core baseband business, if this hit properly?

Again, it's hard to forecast from today. I think the 25% on licensing on the baseband side, on the royalty side we shift - our customer ship probably about 900 million. If you [indiscernible] 9 million in six months, it could be yes, it could be maybe, it could be hope so. But I think we’re a little bit further out from actually knowing how much of each of these 12 semiconductors company OEM is going to be a combination actually make it and how successful they are. I think this was what Gideon was saying. So, the potential is there, there is no doubt that if you look ahead few years, we do want to reach in few 100s of millions of non-baseband products a year. And if you look at the last couple of years, [indiscernible] 100 million going down in the last year or two. And we want to be back at the loss of 100 to 200 or 300 over the next couple of years. I think that's the initial goal on top of the 400 million that Gideon mentioned in the connectivity space. So, if you have 400 million here and another 300 million there and baseband we could be much higher 2 billion and above if we look at 2018. I think we're little bit running ahead of our sales but just to understand the potential if all this works out over the next couple of years. And we have north of 40 deals now around non-baseband just in the last few years. If you look around, it accounts to 40 deals last quarter we could have another 10, this last quarter. And we [indiscernible] customers using – company using our different technologies which eventually should get into – a portion of them should get into production.

All right. And just one last question. There's been some shifting in seasonality on the royalty side of business over the last couple of years based on your customer's exposure. Do you think that repeats itself this year, meaning third quarter, real third quarter to your fourth quarter is stronger than your first quarter? How does that play-out in terms of royalties?

Unfortunately there is no such word of seasonality almost in the wireless market these days not because of the pre-Christmas that's still a very strong driver but really from the players in industry, whether it's [indiscernible] so we know all about the semiconductor guys, this is Intel, this is Broadcom and whenever they change their pattern (ph) the market is not seasonal anymore with regards to season. Both of them decided to quit the market three years ago to Sony Ericsson, now it's IDA (ph) some are positive for us, some are little causing headwinds until the market stabilizes and other company's gain their share then we're seeing that as we speak for the next quarter, although the numbers from Intel and Broadcom were pretty horrible in baseband in the last two quarters, we are able to show growth in Q3 which are based on actual views, terrible numbers in Q2. So, unfortunately until these all clears out and that may take another few quarters and then as Gideon explained who does the major vendors of feature phone chipsets of smartphones and an LTE phones today by [8%](ph) Qualcomm as soon as that changes then you could go back to the normal seasonality. That's on baseband. On the non-baseband it’s still very similar to prior years. Usually second quarter, what we have experienced now is the slowest because this is the post-Christmas effect of Q1. On top of that we are in the transition of gaining new non-baseband players which will change also the seasonality for us two or three years down the road. So now all about gaining these new sockets that are new to us.

All right, great. Thank you.

Thank you, Joseph.

And our next question comes from Suji De Silva of Topeka. Please go ahead.

Hi Gideon, hi Yaniv, nice job on the license guidance here. I'm not sure if I missed it or not but did you talk about the range of licensing expecting in the third quarter versus royalties? I am not sure if I got that.

Yeah, we’re looking at somewhere between $8 million to $9 million of licensing and about 10% sequential growth in both of these.

$8 million to $9 million of licensing you said?

Yes.

Okay, great. And then in terms of the feature phone versus smartphone mix, where is that at this point in time on units or revenue basis?

Good question, we’re talking about 66% feature phones last quarter versus 34%. The feature phones have increased again although the turmoil you’re seeing in the industry with the 2G and the 3G and that story. 66% of the phones were feature phones.

Okay. And can you help us understand where perhaps the Intel feature phone unit run rate is now and your quality of thoughts on the pace of that follow up from this point forward?

The Intel feature phone was mainly shipped to Samsung and Nokia. So, Nokia as you know is not a [indiscernible] there are whole lot of Chinese companies they picked up. In case of Samsung, they are moving to smartphones. So, as I said, this is, the feature phone is still it’s very sizeable market and had it on dynamics. Dynamics is going to Edge phone, to all those $25 (ph) phones with operating systems. So, there is a sizeable market and it’s less competitive now. So, the survival mainly [indiscernible] immediate take our benefiting from this. That’s branded by the way. I think that the feature phones are getting less branded not having the Nokia’s or Samsung with such significant presence there that are lot of non brand or less known brand [indiscernible] economy.

I guess specifically my question was in the royalty run rate, is there remaining Intel exposure or is it the middle men at this point?

It could still continue a quarter or two but I don’t think that’s significant or it’s hard to wake them exactly today but I think in two quarters it’ll be completely out both Intel and Broadcom the next two quarters they will have to monitor the different trends [indiscernible] at what pace?

Understood. And then my last question, I think Gideon I heard you say in the call something about new baseband licensee, I am just curious who, if you did say that then who would be coming into the market at this point, is it OEMs or newer China guys, or did you not say that?

No, I said new agreement we will license it.

On existing customer then right, new agreement.

Right.

Okay.

Royalty advance, on next generation.

Understood. Great. Thanks guys.

Okay. Thank you.

And our next question comes from Jay Srivatsa of Chardan Capital Markets. Please go ahead, sir.

Thanks for taking my question. Gideon despite some of the delays at Intel over LTE, is it your China mobile is shifted lot of the subsidies from 3G to LTE. Who do you think is going to be a big beneficiary there of the LTE ramp up in China, Spreadtrum or Qualcomm or anybody else do you think would be a best position there?

I think as we [indiscernible] in our happening in the 3G and 2G start with Spreadtrum will be focusing on the royalty LTE for Qualcomm, [indiscernible] for there will be some optical relationships in the coming years and then when the prices will go down if we're going to see– I think we'll see the same thing that happened in 2G and 3G. At the end of the day, this market, the China market and the emerging market is not market [indiscernible] company they will go to probably 5G of whatever. Spreadtrum right is not in the market till in volume. We mentioned in the prepared remark they were down [indiscernible] not prerequisite for China mobile.

Okay. You mentioned there is a couple of times suggesting that Spreadtrum would be the biggest beneficiary of the Broadcom business. What gives you the confidence that Spreadtrum will get the major chunk of it and not Media Tech or any of the other providers there?

Broadcom business is more – Broadcom business is Samsung the main customer – the only customer that Broadcom have is Samsung. And Spreadtrum is very good relationships with Samsung and I mentioned in my prepared remark, [indiscernible] that our Wideband CDMA phones coming with Broadcom chipset those Galaxy Pocket 2 or those Galaxy branded phones coming now with Spreadtrum.

Okay. In terms of the licenses on the non-baseband side, up two years that seems to be taken up very nicely. When do you think you’ll get to a point in your revenue mix starting to be comparable between baseband and non-baseband. Is it 2015, 2016, what's kind of your outlook for the non-baseband business?

You mean on royalties? Licensees today is about – it changing – licensees is a lumpy business but many quarters that we have more non-baseband business or more baseband licensing agreement for revenue than in baseband is a consolidated market and there are not many [indiscernible]. When it comes to royalties, royalties, its away to grow. We need to – because the business is so big and we have every customers and volume who have to accumulate mainly relatively many non-baseband customers with our all baseband segmented market in order to get to this volume, but let's see them getting first into production and then starting how they extend. And don't feel the traction in business. We are very strong – I mentioned it we are going into tablets now with [indiscernible] and until Intel SoFIA. It is very dynamic market and we have lot of opportunity because the market is going to more need low-end and this is our value proposition. Our strength is in the low-end and the mid range commercial market.

Thank you. Good luck.

Thank you.

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

Thank you. And thank you all for joining us today on and for your continued interest in support of CEVA. Please visit the Investor Relations section of our website at www.ceva-dsp.com for upcoming conferences and events that we will be attending. Thank you and good bye.

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