Good morning and welcome to the CEVA Inc.’s First Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor Relations. Please go ahead.

Thank you, and good morning everyone. Welcome to CEVA's first quarter 2016 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 general qualitative data. Yaniv will then cover the financial results in the first quarter and provide guidance for the second quarter of 2016. 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 2016, optimism and leveraging market opportunities, and machine vision and deep learning technologies, wireless connectivity and creating Bluetooth Smart, M2M communications, voice processing as well as 3G and LTE, royalty revenue growth, generation of new revenue streams, increasing units shipped by 2018, high confidence in the licensing business for 2016, royalty revenue guidance for the second quarter of 2016, as well as acceleration of strategic investments and continuation of our buyback program. 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 and LTE networks, and the IoT space, 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.

Thank you Richard, and welcome everyone. Our first quarter was well executed, delivered record high quarterly revenue of $16.5 million, up 19% compared to the first quarter of 2015. A good licensing environment underscored by growing success of our vision product, coupled with royalty revenue from continued market share gains in LTE were the key success factors. Licensing and other revenues was approximately $8.6 million, an increase of 10% year-over-year. Licensing included three new customers for our CEVA-XM4 vision DSP following five XM4 deals in the prior quarter. Royalty revenue was approximately $7.9 million, an increase of 31% year-over-year. Healthy shipments continued to grow with 35 million shipped units reported in the quarter, which represents substantial progress from last year when we recorded 70 million shipped units for the entire year. In the first quarter, we concluded 11 new licensing deals, six of which for CEVA DSP cores and platform and five were for connectivity products. Of the deals signed, three were with first time customers and 10 were for non-handset baseband applications. Target end-product in these cases include vision for smartphone, advanced audio for wireless speakers, low-power Bluetooth connectivity for hearing aid earphones and variety of IoT devices. Geographically, four of the deals signed were in the US, three in Europe and four in the APAC region. As we look ahead, we continue to experience tangible growth strengths that we can capitalize on. This include the increasing adoption of machine vision and deep learning technologies in automotive, smartphones, advanced camera, drones and virtual reality headset, proliferation of wireless connectivity in particular Bluetooth low-energy in massive number of devices with our connected as part of the Internet of Things. The expansions of cellular technologies today, low-power machine-to-machine communication market for home entertainment, home automation, drones and smart cities, and the…

Thank you, Gideon. I will start by reviewing the results of our operations for the first quarter of 2016. Revenue for the first quarter was $16.5 million, an all-time record high and slightly better than the midrange for our guidance, primarily due to strong licensing revenue. The revenue breakdown is as follows. Licensing and related revenue of $8.6 million, an all-time record high, reflecting 52% of total revenues. This was 10% higher as compared to the comparable quarter of 2015. Royalty revenue was $7.9 million reflecting 48% of the total revenues. An impressive increase of 31% on year over year basis and the fifth successful quarter that we have delivered year over year royalty growth. Quarterly gross margin was 90% on US GAAP basis and 91% on non-GAAP basis. The non-GAAP quarterly gross margin, exclude approximately $60,000 of equity-based compensation expense. Total operating expenses for the quarter were $13.1 million at the midrange of our guidance. OpEx also include an aggregated equity-based compensation expense of approximately $1.4 million and $0.3 million for the amortization of acquired intangibles of RivieraWaves. Our total operating expenses for the first quarter, excluding equity-based compensation and amortization were $11.3 million also in the mid-range of our guidance. US GAAP net income for the quarter increased 270% from $0.5 million to $1.8 million in the first quarter of 2015 and 2016 respectively. Diluted net EPS increased 350% from $0.02 to $0.09 for the same period. Non-GAAP net income and diluted EPS for the first quarter of 2016 more than doubled year over year and increase by 115% and 113% to $3.5 million and $0.17 respectively. Our non-GAAP net income and diluted EPS for the first quarter of 2015 were $1.6 million and $0.08 respectively. This figure is for the first quarters of 2016 and 2015 exclude…

[Operator Instructions] Our first question is from Matt Ramsay of Canaccord Genuity. Please go ahead.

I guess a couple from me, I guess, first off congratulations on the strong traction in LTE broadly, Gideon I wanted ask a few things going in the industry and maybe you could expand a little bit on the basis of the strength of the sequential guidance in LTE units, things of particular interest to myself are the expanding use of Samsung’s [indiscernible] program through the mid-tier of their portfolio and also maybe you could talk to us a little bit, we continue to hear more and more about fixed mode LTE being important in China not just with Spreadtrum, your primary customer but also I know you guys have a bit of CDMA business with MediaTek, how much those things are contributing to the guidance strength? Thanks.

In terms of the mid-range of Samsung, we cannot really elaborate much about it, the only thing that I can say that we are well positioned there in Samsung, across all tiers we are covered in the high-end, we are in the mid-range and I would say majority of the low-end side which is more not an in-house model but coming from outside, but also is biased and I mentioned J3, Galaxy J3 which is a very successful product in the emerging market which from [indiscernible]. The other thing is the six month wait, that’s what we are hearing as well. I should say almost all of our customers have this CDMA which is the 6 Note that’s coming from the customer and it looks like problem solved I would say.

A couple of other things to dig into and Yaniv maybe I’ll ask you to address this, I mean you guys have talked about a 20% to 40% range in royalty growth for the year, I guess, given all the puts and takes of I guess the new data that you see out there maybe you could talk to us a little bit about where you guys see yourself within that guidance range as you move through the year? Thanks.

Sure, good morning, so it’s a little bit early still in the year, just the first quarter behind us and we did receive most not all, but most of the royalty reports and we see this trend that Gideon mentioned earlier of continued ramp up in LTE, the guidance we gave for next quarter of 20% sequential growth or more than 60% year over year growth takes them to a count probably just shy of 55 million LTE units shipped in Q1 which we will report in Q2. So with that early start and a pretty strong start of the year I would say we are probably more confident or feeling a bit better may be on the towards the higher end of the guidance but we are still within the 20% to 40% but have much more half of the year with royalty reports are behind us and we feel comfortable that even the high end maybe is reachable that’s what we would say today, let’s take another quarter to follow those trends and we will have a clearer picture.

And the last I guess question from me and I'll get back in the queue is, a lot of strength in recent quarters in licensing particularly non-baseband applications not just Bluetooth, but I think things that could carry a higher royalty per unit longer term vision processor et cetera maybe you guys could give us a little bit of a more color about how you see those things ramping into royalty revenue over the next year or two to get towards the 700 million to 900 million goal by 2018, the shape of that curve would be really helpful, because the licensing strength has been apparent. Thanks.

I mentioned in my prepared remarks a few examples that the lines - the areas that we are focusing and we got the first part of first vision product and we have, it is going to be a successful camera. We have the Bluetooth, we have the audio that is now in millions of volumes. So the exact term of how this will shape up toward the 700 million to 900 million is, we don’t know exactly. We see that we have 50 designs running that we are close to tape out or I would say 60% for the tape out. It could be a hockey stick, it could be gradual. I think at the beginning of 2007 we are seeing some more sustainability here and predictability.

Thank you very much. Congrats again.

Thank you.

Our next question is from Joseph Wolf of Barclays. Please go ahead.

Thank you. I wanted to follow up with the licensing expectations and the momentum. If I look at the guidance, it feels like the midpoint is about $8 million and so just a couple of questions. First of all, how much visibility do you have with the licensing because to take you through is it really ad hoc on a quarter basis? And then if I look at this quarter, you had three new customers among the 11 design wins, were all three of those non-handset? And then finally if you look at the overall licensing and the dominant proportion of that being non-handset, is there a handset region - next generation of handset that’s going to refresh that and boost the licensing above trend at some point this year or next?

Certainly I’ll try to address, you asked several questions and Yaniv will jump in with other inputs. First of all, when it comes to cellular, in this we had one baseband out of the 11 non-baseband. Regarding recycle it can come and will come from three vectors. One is there are newcomers into the handset space especially in China. Now the opportunity, the size of the market is enormous and they are looking toward and there are companies that feel that they can do an LTE phones and when you see there is some kind of joint venture or merger between companies, so I mean I think last quarter, this quarter we have company that it’s basically a newcomer into the space. That’s one thing. That area is for other vector growth and this is also I mentioned is the machine to machine. If you were in the recent NWC, these were highlights of the shows, very, very - the 3G could be the standard body for LTE, getting their act together and they are going to standout low bleach rate and machine-to-machine communication and the size of this market is very extended, but it’s 2020-21, you speak about billions of units. And the third element which is non-important is the cycle of 5G. There are lots of companies, Intel is very verbal about it now going into the 5G now and the challenges are significantly higher and we in February announced that these people, the 5G and we are starting to work in the company. By the way not just in handset, but also in the base stations. So these are the cellular opportunity.

Yeah, regards the number, in the last couple of quarters were extremely strong. We once a while, whether it’s Q3 of last year or a similar figure this quarter, so extremely high, the highest we’ve ever had, but I think what we saw maybe a year or two years ago, after acquiring RivieraWaves [indiscernible] new connectivity IPs, but you are comfortable with $7 million to $8 million type per quarter and then consequently the half of course is much higher than that and whenever we could achieve that we happen to report it, but in general some of the normal type of comfort zone we view is significantly higher than 5.5 that we closed in the past for many years and I think we are comfortable with, we will see in the numbers we are already in that range, we are so comfortable that these new licensing deals would potentially generate more royalties in the future.

Okay. And just quick one on the non - another question on the non-base band business. If we look at the total units for 2015 about 120 in the Bluetooth related and 46 in the other, are there two different growth rates that you can be comfortable with in those two end markets right now or is it too early to talk about growth for the year for those two different parts of that business?

I think it’s a bit earlier to put a figure now just because it’s only starting to ramp up. If you look at the annual basis we said last year we are overall up 230% on the entire non-base band and the run rate exiting the year was 200 million, 50 million in the time. If we add up - if we add some of these newcomers that we mentioned, the SPG [ph] and the camera that’s in the market and shipping already, they are all starting to ramp up. It’s still in the millions of units, but as soon as those starts getting maybe another example is Bluetooth in the tens of millions, then those levels could start being much more significant than quarterly basis and hundred and more million units a year. I think putting together, even told earlier, we need to get I think few companies to start these production and we are seeing it already. The more we have the better visibility we will have on the numbers that - we think that the numbers will pick up significantly in the second half of the year.

Perfect. Thank you.

Sure. Thanks, Joseph.

Our next question is from Gary Mobley of Benchmark. Please go ahead.

Happy Monday guys. Just a couple of questions on the royalty trends. Could you talk specifically about the trends that you expect to see in non-baseband royalty units in Q2? If I am not mistaken the numbers might work out to where you are showing maybe just a slight increase in non-base band in Q2?

In Q2 reporting or Q2 shipment?

Which license we shipped in Q1 will impact your Q2 non-base band royalty units?

Q1 I would say was dynamic in terms of the seasonality. We did have companies like DSPG and another company coming, they started to ship in Q1, but that’s a new product and type to introduction of new products. So overall it’s in line with people, it’s Q1 was very weak in the consumer product. Going forward we don’t have any reason to believe that it will not go up again or follow the typical seasonality that we know from last year and the pace will grow up because we have new players.

Even if you look specifically the Bluetooth market in the public companies have talked about it in the first quarter the numbers were down for strange reason, no reason other than just seasonality were down quite significant. This is what we are reporting now in Q2, hopefully the Q2 shipments will be up and then we will up in Q3 guidance for non-base band. I think that’ s the plan.

Okay, all right. And if I am not mistaken, you are forecasting roughly a 57% sequential increase in LTE royalty units in Q2. Could you talk about the diversity of that growth early - in the early days, let’s call, 2015 in your LTE ramp, I think it was heavily influenced by Samsung. Is that still the case or are you seeing much more contribution from licensing such as Leadcore and Spreadtrum?

That’s the point. We are nicely spread across different customers and different tiers of the companies. We have franchise models, we have premium models, we have lead bench models, we have low end and then we have very low end and this is just when it comes to LTE. We are all over the place because we have different products on these different tiers. I think it’s a combination.

And you are guiding OpEx to be roughly flat sequentially and that takes in consideration that you sort of stepped up your OpEx investment as indicated in your overall '16 guide that you provided last quarter in OpEx. What's the temptation now that you might be running at the high end of your royalty growth guide to further increase that OpEx in the second half of the year to take advantage of some potential new market opportunities?

We are making a thorough consideration in terms of increasing OpEx. Our tendency is to build organic investments. I don’t - right now we don’t have any plans beyond what we shared already and where we think we are well stocked to meet our plans for the years. We have other thoughts that we will explore it and gradually invest in goals based on the opportunity we see. We talked about right now in the model, the plan, other than if something new comes and as Gideon explained we don’t see an increase of OpEx from these levels in the second half of the year.

Okay. Congrats on a good start to the year. Thanks guys.

Thank you.

Our next question is from Matt Robinson of Wunderlich. Please go ahead.

Thanks for taking my question and congratulations. I think you probably gave it, so I apologize. Can you give the LTE volume for the quarter, March quarter?

25 million units sold in Q4 which we reported in Q1.

Is that you are getting into mass market driving this sequential increase you expect for second quarter. Is it - and we’ve talked about China for a long time, but we haven't really seen LTE in China start to be a driver. Is it now a driver? Is it happening now or are you looking at royalties from the same kind of customers that have been driving it in the last few quarters?

China is one of the drivers. There are two more drivers. I’ll get back in a second to why China is a driver. We have two more drivers. One is market share or share gain in the premium side of the phones and the growth of LTE in India, because even though the infrastructure in India is not LTE, all the smartphone chips to India are with LTE, hardware. That’s the thing. Now, going back to China, from the interest in China, it was related, but in the last quarter, we see an improvement especially in the mid high end, some of it relates to subsidies that operators are going there and we’re part of this area. Qualcomm spoke about it, MediaTek is speaking about it, so China is again a growing market. And that one more thing if you’ve missed for Q1 shipments which we report in Q2, we talked about just shy of 50 million LTE devices, up from 35 million, which we just reported.

Yeah. I wanted to I guess sort of find your point on it. When you look at that 50 or just shy of 50 million is TD LTE that is really starting to drive it in the sort of specialized LTE phones for China plus those in India or is that in the outlook further in the year.

No. It’s not TD LTE, it’s more than the - it’s a very dynamic market. People are now moving fast to 6 MOA and these are the phones that 3 MOA, we didn’t make the full analysis of the report that we got. I suspect that it’s not that big now.

Okay. So, how do you - where do you think we’re going to be when we start thinking about shipments in the second and third quarter, same kind of drivers, do you think this is going to go for multiple quarters or do you see something different happening later in the year?

The smartphone market is a very dynamic. Things could change. Last year, just for example, Xiaomi was number two in China. Now, I think they’re even - I’m not talking - Apple had a struggling in China. You’re not exactly sure what’s going to happen, but I’m looking on the fundamentals and the fundamentals allow us to be to present all over the place. The fact that India is sustainable, they need smartphone, they need penetration, they need LTE there, so this I believe continue. I think when it comes to the high end, still the consumer has to decide how to accept all those phones, but it looks right now in a good shape and in the mid-range, we see a lot of things coming and we have all those, our customer being able to operate, which was not the case three years ago and was half through last year. Now, they’re rolling in full gear.

[Operator Instructions] Our next question is from Daniel Amir of Ladenburg. Please go ahead.

Thanks a lot and congratulations on a good quarter. I guess where do you stand today compared to where you were three months ago and now with this guidance, I mean has anything positively surprised you or negatively surprised you in terms of the various business segments, in terms of the growth here?

Daniel, the guidance, which we’re giving, the LTE growth part, I’d say a quarter earlier that we anticipated, but we knew it’s going to happen and we are already happy.

By the way, Danny, if you look at the last five years, Q2 was always down in the last five years. This is the first time after a long time that we are breaking that and this is because of the - mainly because of this LTE ramp-up. So we don’t have exactly the crystal ball when it happened and what to be successful, but it’s been in this plane, we have data structure, we have the customer base that competes with the Qualcomms in essence and the MediaTeks of the world and it’s way too better these next couple of years and quarters and it’s a big benefit for us.

Okay. And then in terms of the uses of cash, you kind of mentioned I guess you have the stock buyback and acquisition strategy, I mean, can you kind of just discuss what you’re looking a bit in the areas of acquisitions that you do need to fill or the focus is really at the moment in terms of more stock buyback?

It’s all of the above. I mean, we have a plan, a program for stock buyback and we’ll pursue it. In terms of M&A, we’re constantly, consistently looking for all sorts of prospects that fits to our strategy. I personally believe and my tendency is to try to see things organically to develop things. We’re very good team that can adapt, the reason for example which is substantial technology pace, we’ve developed it in house. Our technology base station is something that we develop in house. So we can do a lot of thinking in house based on the opportunities we see. So all of the above in terms of use of cash.

Our next question is from Lee Meyer of Lord Abbett. Please go ahead.

Hi. Thank you for taking my call, my question and congratulations on a great quarter. I have two questions. The first one is, there seems to be a trend ongoing in smartphones as cameras moved towards dual cameras, which have some new functionality and I’ve noticed that amongst your competitors, particularly MediaTek, they’ve been adding new sort of image processors, sort of I guess DSPs to handle a lot of this enhanced functionality. The move to dual cameras, has this represented opportunity for Ceva. My limited understanding is that, most of that happens in the application processor as opposed to the baseband. And does that represent a challenge for you for your image processor to crossover to the application processor and is that an opportunity for you? That’s the first question.

Okay. The opportunity, you put it right, the dual sensor is an area where we see smartphone manufacturers are looking to improve the quality of the video and also the still side of picture. This is not a baseband or a free play, it’s more a dedicated Vision processor like we’re offering and one of the value add and one of the benchmarks that we’re showing to customer is how to use our Vision processor to do to support the dual camera. There is significant processing that you need to do in order to support this capability. We have a product lines that is not a very - it’s a separate product line, not the baseband product line that we call it the Vision product line, by the way, which is very successful. Last quarter, we had two out of the three design wins came from smartphone from the same use case that you’re referring.

Okay. So last quarter, two of the three Vision licenses you signed were for smartphones, for this use case?

One of the use case, they renewed it - it’s not a one [indiscernible] you can use it, it’s a processor, you can use it for other features, but one of the use case will be dual camera, yes.

Okay. Very good. The other question I have is in some of the discussions I’ve had with the company, you’ve talked about a sort of the emerging base station opportunity, which could potentially be quite large for you in the future, can you give us any update on what you’re doing there and why that opportunity is large for you?

Yeah. This is a very lucrative and important piece in our technology. We are a dedicated product line. We have two large OEM customers known in the space that use our technology and deploy it over and we expect to see royalty coming from this substantial market. They’re going to use it for 5G as early as 2018.

Let me add to that that last year, Q4, we had a pretty significant comprehensive deal with one of the two recurring customers that took a next generation of our DSP for its base station and this quarter, they came back for another piece of stock that will fit on top of that. We’re seeing constant and this is one of the key ones. We’re seeing constant licensing momentum here and as Gideon said, we should be seeing a pretty significant ramp-up, whether it’s end of 2017 and more of 2018, pretty significant number in dollars coming out of that market.

Are those numbers included in your baseband or non-baseband units and are they folded into the LTE portion of that or 3G portion of that or where would they account it for?

Yeah. Good question. So when we call baseband, we also add a word handset baseband. So all of these numbers that we talked about, now 35 million or 50 million for LTE, these are all modems only for handset baseband. When we move to small, the macro, like base station or audio devices or Vision for cameras as you mentioned, these will all fall in the non-baseband, non-handset baseband devices and it will have something specific base stations I’m sure given the right color. So you could follow those trends as well.

This concludes our question-and-answer session. I’d like to turn the conference over to Richard Kingston for any closing remarks.

Thank you again for joining us today and for your continued interest and support in Ceva. We will be attending the Benchmark Company one on one investor conference in Milwaukee on June, the 2nd and we invite you to join us there. For further investor information on a calendar of events that we will be attending, please visit our investor website at https://investors.ceva-dsp.com. Thank you and good bye.

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