Hello and welcome to the CEVA Third Quarter 2016 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President Market Intelligence, Investor and Public Relations. Please go ahead, Mr. Kingston.

Thank you. Good morning, everyone, and welcome to CEVA’s third quarter 2016 earnings conference call. I am joined today by Gideon Wertheizer, Chief Executive Officer at CEVA and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights on the quarter and general qualitative data. Yaniv will then cover the financial results for the third quarter and provide guidance for the fourth quarter of 2016 and the full year. 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 fourth quarter of 2016 and the entire year, future revenue to be generated from the executed portfolio license agreements and optimism about extending such a licensing model to other customers, optimism about the licensing pipeline and customer ramp up schedule, our ability to capitalize on emerging market opportunities including cellular IoT, machine learnigns, non-basebands LTE and 5G and resolution of our account receivable balance issued by year-end. The risks, uncertainties and assumptions include the ability of the CEVA signal processing IP 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 share 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 BT5 and the IoT space, customers ramp up schedule and the impact on the royalty revenues and 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. We are pleased to report a very successful third quarter with a record high revenue, strong execution in licensing and continued quality royalty project rules will slate along the highest non-GAAP quarterly EPS in more than four years. In addition, we have enriched our technology leadership and now in two new DSP-based platforms targeting the fast growing spaces of machine-learning and IoT. Total revenue came at a record high $17.8 million, up 10% year-over-year. Licensing and licensing-related revenue came at $7.5 million with 13 licensing deals signed including comprehensive technology portfolio agreements the first of its current in CEVA history. Of the agreements signed, four were consumer DSP cores and platform, eight for connectivity products and one was the portfolio agreement that I just mentioned. Ten of the agreements were for the non-handset baseband applications and six were the first time CEVA customers. Geographically, four of the deals signed were in the US, seven in the APAC region and two in Europe. We ended the quarter with record high booking on an early view to two large agreements with market leaders which I will elaborate on shortly. The record revenue came in had record high $10.4 million up 36% year-over-year and 8% sequentially, even with our new rollout of handset baseband tariff and growing shipments of non-handset chips by customer which reached a all record high of 59 million units. The third quarter licensing dynamics highlight the strength of our diversified portfolio and the strategic benefit it offers to our customer. Let me take the next few minutes to discuss three deals signed during the quarter in more detail. The first deal is with a Tier-1 handset OEM with in-house baseband design capabilities. It is our first licensee for five new mobile broadband to…

Thank you, Gideon. I’ll start by reviewing the results of our operations for the third quarter of 2016. Revenue for the fourth quarter was $17.8 million, a fourth consecutive quarterly all time record high achievement. This was 10% higher in annual basis and 4% higher sequentially. The revenue breakdown is as follows; licenses and related revenue was $7.5 million reflecting 42% of total revenue. 13% lower compared to the comparable quarter in 2015, but in line with our plans and expectations. Revenue of $10.4 million reflecting 58% of our total revenue, a decrease of 36% on a year-over-year basis and the seventh successful quarter that we delivered year-over-year quarterly royalty growth. Operating margins were 92% based on the US GAAP and non-GAAP basis, the non-GAAP quarterly gross margin excluded approximately $65,000 of equity-based compensation expenses. Total operating expenses for the quarter were lower than expected and also lower compared to the first two quarters of the year mainly due to the magnitude and timing of the research and development grant payments that we received from the Office of the Chief Scientist of Israel. Overall, we reported OpEx of $12.6 million at the lower range of our guidance. OpEx also included an aggregate equity-based compensation expense of $1.5 million and $0.3 million for the amortizations of acquired intangibles of RiveraWaves. The total operating expenses for the third quarter excluding these two items were $10.8 million, below the low range of our guidance, and the lowest quarterly OpEx for the year. Taxes for the quarter GAAP and non-GAAP were around $10 million, a big high than the norm due to a one-time tax expense relating to a tax court ruling essentially down certain tax provisions relating to prior years. US GAAP net income for the quarter was $3.4 million, quite similar to…

[Operator Instructions] And our first question comes from Gary Mobley of Benchmark. Please go ahead.

Hi guys, congratulations to a strong finish to the year or what is expected to be. I had a housekeeping question to start-up with. What were the 4G royalty units in the third quarter?

In the quarter we had 62 million units which is in line with the – day and the earlier conference call last quarter. The supplies comes with the fourth quarter. We anticipate about 80 million of units next quarter.

Okay, and on that note, I am assuming that any sort of disruption and what has – your top customer with respect to battery issues and what not is going to be more than offset by new avenues of growth such as another high-end smartphone, am I summarizing that correctly?

You are right, it’s all of the above, as you can – things are going well, you know.

Okay, all right. With respect to the revenue recognition this new portfolio agreement. The way it was described, it sounds as if there is going to be one quarter out of each year in which there will be – the amount of revenue recognized is that going to create in the future a lumpy fourth quarter as that licensee either does or does not exceeds some pre-determined threshold for revenue recognition?

So the annual basis is not calendar basis if you do what you saw in during the third quarter as we said, the relative finishing would be annually that means that the second quarter of next year, easily by then you recognize a part of that revenue or mainly earlier if that customer reaches its annual spending account then we could recognize that earlier than the one year range. So the maximum for the next couple of years and it’s the recent technology that Gideon talked about, then we could potentially recognize at the earlier. So, I am not sure if we were looking through for a long busy third quarter or second quarter in the next couple of years, but we are sure that as backlog cover to the second quarter into next few years or a bit earlier.

Okay. I know it’s the deferred revenue almost doubled sequentially. Was that a function of the recently launched CEVA-X1 and XM6 before they are generally available or is it a function of some of these new portfolio license agreements?

Well, the latest addressing you did a example of those deals that will be signed regards paying for some of them or partially paid and we haven’t recognized revenues because of the different rules we are going to want the portfolio license that we talked about, the another big one that Gideon talked about is a more of a – bid and it we have to materialize a big portion of that and that – we had an addition of ten years like most of these licensing activities. So, that over the next couple of quarters will be used as part of our revnue recognition.

Okay. Last question from me relates to 5G market share. You’ve been humming along here for a couple of years at mid-30% base band market share. It sounds as if, as it relates to 5G you are dominant in baseband processing in base stations. It sounds as if you are growing your footprint on the mobile handset side with respect to 5G with some of these portfolio agreements and what not. At this point in time, would you expect your overall baseband share to increase in the future as we transition to 5G and maybe any additional detail with respect to a 40% threshold, a 50% threshold commentary would be helpful?

Gary, it’s Gideon. About 5G, you said right. The 5G footprint that we so for until this deal that we announced today is the – is in the base station and this was the first 5G mobile broadband which take us to the handsets and automotive and all the strategies and it’s time to confirm. When it comes to high bandwidth, I am not talking about IoT. Now, the standards of the 4G is not yet rectified. So, due to [Indiscernible] estimated companies are those that with historic technology base are urging to come to the market with a great standard to 5G and how customer is rushing on this one. Going forward in terms of our market – our current market share is 36% now and going forward we have about 2.4 billion going to handsets in a year and we are at about 900 million this year. So we are expecting going forward because of the emergence and going 5G and because of the movement in the new generation low-end - iPhone to improve our market share.

Okay. Thank you guys. That’s it for me. Thanks.

Thanks, Gary.

Our next question comes from Josh Wolf of Barclays Capital. Please go ahead.

Name change thrown in there. Good morning guys. I have a question on the – if you look at the non-Bluetooth unit countage you gave, when you look into that number and the growth there, I think you mentioned audio is and voice, do you see specific area – is that in a collective group in that number right now? I know it’s a smaller number or are there, is there anything in that like it potentially be a large blockbuster product which is in early stages and we should see a big ramp up in 2017 with what you are already selling?

Yes, I think it’s a combination of products. Right now, out of this $60 million, by the way next quarter we are looking at the new record high of probably about $70 million for annualizing that through the solid $300 million only for now. The big driver grew last two years were Bluetooth was the more mature product and the first product out this year away. The second one it come from a big amount, obviously we are seeing a lot of interest around and pick up around, or the long time consumption of the speakers and things like that. We have seen Wi-Fi deals that should be ramping up next year. And I think the most exciting one is a newcomer is the vision platform and Video Nation quite a few new names like [Indiscernible] and like others that are now, the Fujifilm guys in cameras and different vision applications and I think this is the highest ASP in average for these non-baseband type of devices that we will have on our hand and – then your market opportunity of things picking up. So I think this deals the three elements other than Bluetooth where the lowest – still an exciting opportunity around the vision.

Okay, and then a second question, if you look at the handset market, the baseband market, there used to be specific seasonality where the fourth quarter of the year was the strongest that you saw that in your first quarter then it kind of shifted because of customer mix is back to the third quarter. So your fourth quarter was the strongerst. The fourth quarter guidance is for significant growth. Where do you think we are given your new customers, you talked about the large premium customer. Where do you think the seasonality for the handset market is right now? Should we expect a fall for the first quarter or is there a growth in the first quarter?

It’s hard to say, because, today in the handset market you don’t have really seasonality in terms of calendar year pre-Christmas, post-Christmas. Each company has its own timelines in introducing new models, some of them are taking even technical approaches and tow make things even more complicate, we are in a market share gain, we are entering into a – we are expanding in the smartphone market and so, we cannot fully associated with seasonality the trend and that was the trend is clear. We are expanding in the baseband – we want to expand and this is the smartphone space.

All right. Thank you very much.

Thanks, Joseph.

Our next question comes from Matt Ramsay of Canaccord Genuity. Please go ahead.

Good afternoon guys. Thank you for taking my questions. Gideon, there is obviously a lot in the press and a lot going on at Samsung which is obviously one of your key partners for 4G and it sounds like for 5G going forward. Looking into next year, maybe you could talk about some of the dynamics from a royalty perspective of what you can – what you think can be driven out of Samsung LSI Semiconductor division? I mean, you have obviously new mid-tier products potentially some brand disruptions and product disruption at the high tier and some new opportunities with them longer-term, but Mediatek a couple of sockets there for the first time. So, there is a lot of moving parts there and it’s a question I get a lot from investors. So, any commentary you might have on outlook for that particular customer next year will be really helpful. Thank you.

Matt, generally we cannot comment on 2017, it’s too early. But the plan that we [Indiscernible] is to grow as much from new addition in the baseband side and of course in the non-handset baseband and you see the trend is – see the trajectory in the last quarter is expected to be continue next year and after that.

Now that’s fair enough. It’s early days, I understand. You made some good commentary, I think in the prepared remarks about progress with Rockchip and I think I’d be really interested to hear about a little bit more about progress on launches of devices that collect royalties from other chipset vendors in China. I know there has been Leadcore has been a partner in the past and I believe Leadcore is licensing some of its modem technology to some other semiconductor groups with smartphone vendors in Asia. So, I think folks obviously focus on Intel’s Spectrum, Samsung, but I know there is some other dynamics in play in China and if you could give us an update on the progress there, that would be helpful? Thank you.

Matt, it’s a good question that you are asking. I think what we have encouraged in the vision is the smartphone evolution. Smartphone is currently behind in adapting vision. But if you take out from seven for example, the glass version where they have a dual camera to get a better focus in room capabilities, you need a vision processor for these kinds of clear group. There are people speaking at the conferences of 360 degree cameras in smartphone and that’s something that you need the vision processor like we offer. So, Rockchip is the one example, what they do is basically a chip that will be a companion chip to the bigger for few of the – Qualcomm Mediatek and this will do a core processor dedicated for the camera. So Rockchip is entering the – we mentioned Fujifilm, there are few other customers going into on focus innovation regarding the camera. On top of this, we launched on the connectivity side, comparing that - may not be stimulated to our – in the US, but there are in China, quite may as you’ve known and consumer product whether it’s wireless speaker and the innovation about – just think about the [Indiscernible] in China tons of companies that are being similar products. Think about it the other devices. So all these things – the good thing about us, what our technology does is generic enough and agnostic enough to those – all those products and this is where we see the design ends and the production apps.

That’s helpful and then just last one from me and I’ll jump back in the queue. Yaniv, you guys have talked about for a while a target of non-baseband royalty units out to 2018, I believe 800 million was that number at the midpoint and obviously that guidance was given a couple of years ago when things are moving around. Good to see that number inflecting higher in terms of the units in the quarter and in the guidance but a progress report toward that number would be great. Thanks guys.

So, stock royalty of the year, it’s a bit early, but just from a royalty perspective and a unit perspective, what you’ve seen is maybe two or three interesting and between – from a volume perspective and baseband, we are probably around 14%, 15% higher than last year, but it’s a very, very interesting chunk of smartphones probably closer to 0.5 million, 1billion devices compared to 300 million last year. So that was a big increase in the smartphones compared to the feature phone and in the non-baseband units and you asked about – if we were about the 167 million last year we are looking at 20 million a 20% growth for this year putting us just north of 200 million. If I look the fourth quarter annualized the number is much better than 20 million. So unlike 70 million, this is more or less the number that we are forecasting for the next quarter and while we wanted that 280 million put forth in a runrate – starting the runrate for next year which serve us to close the gap for the 800 million. So, in this third quarter we will need to decide with 2015, it’s really a doubt. We haven’t; touched the target, but I think of a very, very interesting thing happening to us in - both from the volume and even more important on the dollar where you see the contribution in 2018 when we will have most of the base station royalties kick in. So, we’re slowly closing the gap. We are not yet 100% sure as Gideon mentioned about next year volumes in dollars we will talk about as and be our home work. So with the next earnings call, as usual, but from a unit progression, I think we are doing quite well this year both in non-baseband and in the baseband itself.

Thank you very much.

Great. Thank you.

Our next question comes from Suji De Silva of Roth Capital. Please go ahead.

Hi, Gideon, hi, Yaniv. Congratulations on the strong results here. Can you talk about where we are in the emerging markets upgrade cycle for LTE smartphones, China, India? And just some – of the expectations in the 2017, I know you can’t talk much about 2017, but some thoughts that would be helpful.

This is a good question. The interesting – China is completely LTE-centric. We don’t see too many 3G growing. India, what we understand that, all the – the majority of the phones going there is – you don’t have the network into the phones and we see companies in China trying to do the local phone than today, but in general, that’s a good sign for us, because we’ll have a result of smartphone and another is a – it’s drives our ASP higher.

Okay, great. And then on the overall blended ASP for the company, should we still have boutique dominating and the mix – the mix impact the next several years and will that stabilize?

Well, in overall, we like through the day of – as the powergate or as we are working through that. It’s fully a consequence of the volumes into the different products. So, I don’t think we have a goal, say, we did have a goal for volume. We did have a goal for different markets and as we work out and each one has a different limit of speed, it is growing ASP whatever comes in average for the company, this is what we could do forward. But I don’t think what the model that takes it out. This is a target in the market for us. It’s just more of the outcome of the differences that I think you talked about in different volumes in these different markets and the progress that you are seeing this year, of course, we’ve got the – get to be much stronger this year more than 3x volume from last year, we had a very, very positive momentum from the ASP perspective. Then you have the vision and you have the – you have some of those other elements that we talked about in the call, it all different stages but it should increase the royalties and it’s a positive effect for us.

Great and my last question really. These portfolio licenses you have achieved, can you just review for us the significance of them, just so it’s clear for us? Thanks.

We are not sure, we understood the last question, sorry.

I’m sorry, the portfolio licenses, if you could just speak of the significance of achievements?

The significance, the portfolio licenses, yes, so, to explain, the idea how this is working out?

Yes, what the customers are seeing that that drove them to take the whole portfolio?

Okay, I think, this is a company that no doubt that did not used the variety of – and we look for ways that’s still too far, the new to the – or IP. So instead of they should [Indiscernible] and having a lot of infrastructure and a lot of legal fees that account into the business view with that, we’ve tied a much bigger portfolio license and you can expand – technology baseband, vision, audio, connectivity, Wi-Fi, Bluetooth you have sort of prepaid by the – in each division that moves an IP could take it off the shelf in a very, very simple activation code. And that’s the mode behind it. We are trying to be very, very easier access continual access to our technology. If it don’t work out for us into the next couple of years, hopefully we have more products more chips and more markets that these large competitors utilize our technology and generate new royalty streams for us.

I would add to this one. This is in our strategic – this deal really comes from a strategic standpoint because, other than I made the process now, I am into DSP for this specific project and thereto it’s more like a futuristic world, you take few years ahead and say, you know, I don’t know exactly what I want to be, but I want this product to be valuable for me. So I can use it for my next generation and next, next generation product. So it’s never like, a few years horizon for collaboration into customer.

Thanks guys.

Thank you.

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

Thanks for taking my question. Just wanted to ask you about, you mentioned two – I think if I heard you right, you mentioned two new mass market products, one being low-end. Is that low-end product an LTE product?

We mentioned two , this is Gideon, we mentioned two handsets or baseband products both are in high volume. One is premium handset maker and other one is high volume company that need the old range product. So these are the two new royalty payers and volume productions.

Yes, just asking if that – if the second one, high volume lower end if it’s LTE?

Implementing from, but our confident there is – as I mentioned in the prepared remarks, is lower. We need the clear billing has led in part and that’s not fairly inventory.

Thanks.

Thank you.

And our last question comes from David O'Connor of Exane BNP Paribas. Please go ahead.

Yes, good morning gentlemen. Thanks for taking my question. Maybe the first one, Yaniv for you on the portfolio licensing deal. What’s your expectation when you look across your range of customers at the moment for those types of deals re-occurring. Should we be thinking kind of one an annual basis or is it going to be a – is it more in a kind of every two, three years than that those type of deals come along? That’s my first question. Second question maybe, going back to, you spoke, Gedion on the vision co-processor for cameras, it’s going to be implemented as the kind of a co-processor chip in the first generation. I am just wondering, when you look at that over time, is that going to be something that’s going to be integrated into the ISP longer-term or is it going to sit there as a co-processor in the next couple of years? That’s my second question and then, maybe if I could get in more and more, another talk at the moment around the vision system in ADAS and into automotive, I am just wondering how are you discussions trending with kind of OEMs or any auto suppliers at the moment? Thanks.

Very well if you ask these questions, I’ll let Gideon for the answer first question.

I remember. I remember. Yes, it reflects food when you it’s a matter I see it, you get the appetite.

Okay, that’s fine. I think I remember now. With regard to the portfolio, again, I think the aim to look on the portfolio is not on the licensing line. The licensing line is pre-determined and will define on both on the amount on the revenue recognition. The benefit is that, the other customer is going to give rights or plan to give rights in many – these many of our – lot of our products and the aim to look into this one is the potential for royalties coming from this transaction going forward and this is the benefit regarding the portfolio.

No, I think the question was,

Do you – is this repeated, once a year, once a few years, of course, when the appetite, that the food comes, the appetite we think it could be a great opportunity and especially large companies. It doesn’t work with the startup. It doesn’t work with a first time image design, because they don’t yet how many chips they are going to have - having success with that product is, they are much limited with the consolidation in the space. There will be more limited type of companies but for sure, this is something we will try to help you about this. How it’s for us right now, to comment, this is a one year or one has the couple of years, but they go out, they search people aware of this deal. We are aware of such a deal and we are launching and talked about today and we see a lot of advantages for that. So, we try to copy it, can’t promise at least today that is something if you have for sure next year as well.

Yes, let me now, because we are out of time. I want to respond to the vision question, because this is an important question. As you pointed out, this is - currently is a co-processor that are held in between the ISP chip and the - it’s a Qualcomm Mediatek one exactly and going forward, this technology could be either in there for chip integrated in the SOC and it depends on the customer choice it could be integrated into the transfer chip or could be a co-processor. A chip kind of in between all distinct. It’s mirror agnostic in regard to – location still, and for what’s at this stage is the – what encourage us is the used cases that complement our coming out and how to use vision processor and bit learning to improve vision, improve the camera performance or the camera sensing.

Mr. Connor, did you have any more questions?

Yes, just my follow-on question on the ADAS, the vision systems into ADAS and also that was my third question. I know those questions that you have is more with auto OEMs or suppliers and how is that trending? Thanks.

Yes, sorry for letting this question, this is also an important question. When it comes to ADAS automotives, autonomous cars, this is a different market that the consumer that’s – the timeline for our business and the acceptance criteria is different, but it is very dynamic area. We are – we have a plan that we are following and currently engaging a customer. Only there are few companies, one of them started to ship this quarter, it’s in aftermarket, in OEM market, but – we are optimistic about because we see the fits.

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

Thank you everyone, for joining us today and for your continued interest and support in CEVA. We will be attending the following upcoming conferences and invite you for joining us there for an update. The Bernstein Technology Innovation Summit on November 7 in New York, the Second Annual ROTH Technology Corporate Access Day on November 16, in New York and Barclays Global Technology Conference on the December 7 in San Francisco. For further information on the events and other events that we are hosting, please visit our Investor section of our CEVA website. Thank you, and goodbye.

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