CEVA, Inc. (CEVA) Q1 2021 Earnings Report, Transcript and Summary

Good day and welcome to the CEVA, Inc. First Quarter 2021 Earnings Office 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, today's event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence, Investor and Public Relations. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone and welcome to CEVA's first quarter 2021 earnings conference call. I'm joined today by; Gideon Wertheizer, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the first quarter and provide general qualitative data. Yaniv will then cover the financial results for the first quarter and also provide qualitative data for the second quarter and full year 2021. I will start with the forward-looking statements. Please note that today's discussion 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 statements regarding demand for and benefits of our technologies, including 5G technologies and our BlueBud platform IP, and related deal flow. Expectations regarding market trends, including growth in shipments of Ultra Wide Band devices, and True Wireless earbuds and secular growth in the IoT space, beliefs regarding benefits of the Intrinsix acquisition, as well as the closing of the acquisition, our ability to help customers mitigate risks associated with supply constraints, and guidance and qualitative data for the first quarter and full year 2021. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the scope and duration of the pandemic, the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally, the ability of CEVA's IPs for smarter, connected devices to continue to be strong growth drivers for us, our success in penetrating new 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 5G and IoT networks, our ability to execute more base station and IoT license agreements, the effect of intense industry competition and consolidation and global chip market trends, including supply chain issues as a result of COVID-19 and other factors. CEVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. And with that said, I'll now hand the call over to Gideon.

Thank you, Richard. Good morning, everyone. And thank you for joining us today. 2021 is off to a robust start with strong licensing execution and royalties exceeding our expectations. During the quarter, we unveiled BlueBud, a first-of-its-kind IP platform for the booming market of the True Wireless TWS earbuds, smartwatches, gaming headset and other wearables. Today we are announcing the acquisition of Intrinsix, a Marlborough, Massachusetts based leading chip design and secure processor IP Company with an extensive experience and solid business in the Aerospace and Defense market. I will elaborate shortly on these strategic initiatives. Total revenue for the first quarter of 2021 was $24.4 million [sic - $25.4 million], up 8% year-over-year. The licensing environment continues to be healthy with $14.4 million in licensing revenue, down 1% year-over-year. We signed 11 new agreements, of which, 2 were with first-time customers. China continues to be a very strong market for wireless connectivity technologies, with high adoption rate both by strong incumbents and newcomers. We are experiencing increasing interest for our 5G technologies, specifically, the new 5G provision known as RedCap or Reduced Capability, which is targeted for the proliferation of IoT devices such as wearable, industrial wireless sensor, surveillance cameras and more. Our Bluetooth and Wi-Fi technologies continue to be in high demand for a variety of IoT devices for smart home and mobile devices. We also sign up a lead customer for Ultra WideBand UWB technology that we are currently developing. UWB, is a short-range wireless communication that is able to precisely triangulate location of devices, with high security. It is already widely used in both the automobile industry and recently Apple, Samsung and Xiaomi have embedded UWB in their flagship models and are gradually embedded UWB in other high-volume devices such as the recently announced Apple Airtag. According to ABI Research, 285 million UWB devices are expected to be shipped this year and forecast to reach to 1 billion devices by 2025. Royalty revenue reached $11 million, up 21% year-over-year, ahead of our expectations. This was driven by robust demand for our consumer and IoT products and above seasonal demand in smartphone. We believe our customers are facing tight supply constraints, as is most of the industry, and are working hard to expedite shipments for high demand products. Let me now go through the rationale for the acquisition of Intrinsix, which we are announcing today. Intrinsix is a leading chip design and secure processor IP specialist targeting the growing chip development programs in the Aerospace and Defense market, and a range of - other IC designs for medical and industrial products. Intrinsix has successfully executed more than 1,500 complex design projects in its 34-year history and built a successful business that generate more than $20 million in annual revenue. Over the years, they have built strong relationship with blue chip semiconductor companies and OEMs among which are Intel, IBM, Leidos, Lockheed Martin, Honeywell and many more. Their chip design skills and expertise are scarce and include proven competencies in RF, mixed signal, digital, software security and RISC-V processors. With the additions of Intrinsix, CEVA stands to benefit from three growth pillars. First, extending CEVA market reach into the sustainable and sizeable Aerospace and Defense space, a market forecasted to reach to $6 billion in annual semiconductor spending. Second, increasing our content in customer design and accordingly increasing the license and royalty revenue opportunity by offering turnkey IP platform that combine CEVA connectivity and smart sensing IP with Intrinsix chip design expertise and security and interface IP. Third, expanding CEVA IP portfolio with secure processor IP for IoT devices and Heterogeneous SoC interface IP for the growing adoption of chiplets, which offer a faster and less expensive alternative to the high R&D costs and complexities associated with monolithic IC developments. We welcome the Intrinsix team to the CEVA family and look forward to the exciting opportunities ahead. We expect the closing of the agreement to take place during this quarter. Yaniv will discuss the financial aspects of this acquisition later on. Another important product we recently introduced is the BlueBud platform IP. The proliferation of True Wireless earbuds is skyrocketing as millions of workers, students, doctors and other professions are required to spend much more time in voice or video calls and need a stable and high-quality audio experience from their wireless earbuds. According to recent data from Counterpoint Research and Strategy Analytics, the TWS market is expected to reach to 600 million units by 2022 and to see 70% CAGR over the next three years. The underlying technology used for TWS has broader uses can be carried forward to smartwatches over-the-counter hearing aids, mobile gaming, AR headsets, home entertainment speakers and smart home appliances. With the BlueBud proposition, CEVA strive to become the de facto standard for wireless audio in the IP industry. Our unique technology competencies and holistic view allow us to address the substantial technology challenges derived from the need for extreme low power consumption and intelligible audio quality. BlueBud is a self-contained platform enabled by our high runner CEVA-BX1 DSP and incorporates all the software framework and hardware peripherals required for a wireless audio system. BlueBud also offers optional value add SDKs including our WhisPro AI based voice recognition software, ClearVox for echo cancelation and noise suppression software and MotionEngine Hear, for IMU based user control. I am pleased to share that we have already signed up a high-volume lead customer for BlueBud at the beginning of the second quarter and are expecting more deals to follow as the product is released to the wider market. So in summary, we are very pleased with our solid performance in the first quarter. Our business fundamentals are strong and with the acquisition of Intrinsix, we are expanding into the Aerospace and Defense market and enriching our value proposition and content by offering turnkey IP platform and new IP for security and HSoC interface. With our technology base, core competencies and customer relationship we are well positioned to capitalize on secular growth in the IoT space. Lastly, we are monitoring closely the impact the industry - on the industry wide supply constraint and will help our customer to mitigate their risk and challenges where we can as they become apparent. With that said, let me hand over the call to Yaniv for the financials.

Thank you, Gideon, I'll start by reviewing the result of our operations for the first quarter of 2021. Revenue for the first quarter was up 8% to $25.4 million, as compared to $23.6 million for the same quarter last year. The revenue breakdown is as follows. Licensing and related revenue was approximately $14.4 million, reflecting 57% of total revenues, just slightly lower than $14.5 million for the first quarter of 2020. Royalty revenue was up 21% to $11 million, reflecting 43% of total revenues, compared to $9.1 million for the same quarter last year. Quarterly gross margin was 91% on a GAAP basis and 92% on a non-GAAP basis, both better than what we projected. Non-GAAP quarterly gross margin excluded approximately - $0.1 million of equity-based compensation expenses and $0.2 million of an impact of the amortization of acquired intangibles. Total operating - GAAP operating expenses for the first quarter was just over the higher end of our guidance at $24.4 million. Our total operating expenses for the first quarter, excluding equity-based compensation expense and amortization of intangibles were $20.7 million, also, just over the high end of our guidance. Tax expense for the first quarter came higher than expected due to an uncommon revenue mix in which the majority of revenues recognized are associated with our connectivity products, Bluetooth and Wi-Fi originating in France, which has a high corporate tax rate of 26.5%. On an ongoing basis, our corporate tax rate should be lower and in line with our original expectations, but mainly prudent on the outcome of the revenue allocation mix. US GAAP net loss for the quarter was $3.6 million and diluted loss per share was $0.16 cents for the first quarter, as compared to a net loss of $1.2 million and $0.05 loss for the first quarter of 2020. Our non-GAAP net income and diluted EPS for the first quarter were $0.3 million and $0.01 cent, respectively. This is compared to the first quarter of 2020 which we felt $2 million of net income and $0.11 cents. With respect to other related data. Shipped units by CEVA's licensees during the first quarter of 2021 were 345 - 341 million units, down 30% sequentially and up 31% from the first quarter 2020 reported shipments. Of the 341 million units shipped, 129 million or 38% were for handset baseband chips, reflecting a sequential decrease of 41% from 217 million units of handset baseband chips shipped during the fourth quarter of 2020 and a 16% increase from 111 million units shipped a year ago. Our base station and IoT product shipments were 212 million units, down 21% sequentially and up 41% year-over-year. As for the balance sheet items as with the end of the March 31st, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were $174 million. We did not exercise our buyback program this quarter, as we focused on the Intrinsix acquisition and the expansion in the business. Upon closing the deal, our cash balances will be reduced by approximately $33 million in acquisition consideration as well as deal costs. Our DSO for the first quarter was 49 days, similar to the prior quarter. And during the quarter, we generated $15.2 million of net cash from operations, depreciation expenses and amortizations were $1.5 million and the purchase of fixed assets was $1.1 million. At the end of the first quarter, our headcount was 412 people, of which, 346 were engineers, up from a total of 404 people at the end of 2020. Now for the guidance. We continue to experience a healthy licensing environment and pipeline is solid. Royalties, we believe our customers are still dealing with industry-wide supply constraints, which may prolong for the remaining of the year. With that said, the demand for products based on our technology is strong and our customers with our support are working fiercely to fulfil their purchase orders. As we announced earlier today, we agreed to acquire Intrinsix and expect to close the deal later in the quarter. From a financial point of view, we expect Intrinsix to contribute between $10 million to $11 million to CEVA's top line in the second half of the year and that this deal will be accretive as early as 2021 on a non-GAAP basis. We'll provide more information on the next earnings call. On the back of this, we forecast our new total revenue for 2021 to be between $116 million to $117 million, compared to about $100 million in 2020. This is subject to the Intrinsix acquisition closing on the anticipated timeline. Specifically for the second quarter of 2021. Gross margin is expected to be approximately 89% on GAAP basis and 91% on non-GAAP basis, excluding an aggregated $0.1 million of equity-based compensation and $0.2 million of amortization of other assets. OpEx for the second quarter should be lower than the first quarter. For the second quarter, GAAP-based OpEx is expected to be in the range of $22.9 million to $23.9 million. Of our anticipated total operating expenses for the second quarter, $2.9 million is expected to be attributed to equity-based compensation and $0.6 million to the amortization of intangibles. So the non-GAAP OpEx is expected to be in the range of $19.5 million to $20.5 million. Net interest income is expected to be approximately $0.45 million and taxes for the second quarter are expected to be around $0.7 million on both GAAP and non-GAAP basis, in line with our prior expectations involved. Share count for the second quarter is expected to be approximately 23.5 million shares. Rocco, you could now open the Q&A session. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Matt Ramsay with Cowen. Please go ahead.

Thank you very much. Good afternoon, good morning, everybody. Congratulations on the acquisition, Gideon. Maybe you could give us a little bit more background on Intrinsix your relationship with them? Have you guys collaborated with them on other projects in the past? And if you could walk us through what are the particular pulls from, I guess the Aerospace and Defense and government sectors for technologies that are appropriate for CEVA's portfolio? Which pieces you might have had? And how, which pieces you're acquiring? Looks like a good deal. It was just a little bit. Anyway, we externally weren't familiar with the company. I imagine a lot of your investors weren't. So if you could give us a little background that would be great. Thank you.

Good morning, Matt. Let me start by explaining about Intrinsix and the rationale for us to do. So it's very hard to find such a skill set under one roof, that they can do complex design, involve different disciplines like towers, mix signal security, which everybody has to do it in IoT and do it all the way from specification to a design, and we found this company and they have a 35 or 36 year of track record of doing such project. Now with that in mind, we plan to take advantage of it in two growth pillars. One is, security and aerospace and defense. This is a market that we were looking to expand into, in conjunction, what you're doing the consumer and the telecom model. It's a big market. It's a DSP intensive, because you do lot on radar, GPS, you do a lot of DSP processing. And they have designs that were solid business. In general, aerospace and defense, you have big spend, they have system companies, it's a high entry barrier to penetrate. But once you're there, it's for the long haul. So what we plan to do there is basically increase the content, because we can maintain our DSP in conjunction of the design that they do or the customer that they have, and with that in place, to get exposure to the market. But anyway, we plan to do, and much faster exposure and higher content with our IPs all the portfolio that we're going to go. That's one pillar. The second pillar is what we call internally, turnkey IP or what we define as turnkey IP. You know, there are many system companies today that they want to build a chip to create a competitive edge. And those guys, they need to, not all of them can build a team, a design team, because this is again the skills that these are very hard to find, take a long time to build the cohesive designing. So those guy go either to AC company or other way, or ASSP company and want them to change. So what we plan to do is, take our IP, and TWS is one example like BlueBud, it basically come to the customer with a proposition that not just we sell our own IP with other hardware and basically provide to the customer the design of the chip, then they can go directly to the foundry and manufacture the chip. And this is something that we see lot of interest from customers coming and then requiring such capabilities to do. Thinking it's a very equivalent to what AMD is doing in semi customer. AMD design chip for PlayStation, Xbox, they're bringing their IP and provide a design for Sony or Microsoft. Same thing and a different example, close to what the market that we are in is what led Marvell to acquire Avera, because Marvell has then then IP and Avera can do the sell or make design for the customer. So we are not going to be chip manufacturing. We'll be IP Company, but we allow our customers to go directly to the foundry and not take any intermediary in between. So that's the second pillar. The third pillar is that we didn't have and this is the security IP, secure processor IP. This is something that you have to have in any IoT device and IoT is our main market. And if you don't do it or you'll be hacked and they have the technology they deal with it for many starting from their delta projects. And the other IP that they bring in is what is called - SoC which is a hybrid SoC and this is basically chiplets. Going back to those system companies, very difficult, very complicated to do a monolithic SoC like what Apple is in their chips or semi companies doing and chiplet is basically, you take a different guy and connect it on the what is calling, the [indiscernible] of combining into one chip and in physical strategic relationship with Intel that it is a leader in this area and one banker of their fundraise strategy, the new fundraise strategy. So we will be looking to capitalize on this. So that's all the consideration that led us to for this transaction. This is very familiar with the DSP, very familiar with our technology within that projects in the past, but we already communicate and shared with key customer of this capability and got good feedback.

Great. Thanks, Gideon for all the details there. Good luck with the deal. Yaniv, a couple of financial questions. One is, one set is on the acquisition, I think you said on your script 10 million to 11 million for the back half of the year, if you could give us any sense of the rest of the P&L of the acquisition around margins, OpEx, taxes, things like that. And I guess the second part of the question is on the core business, the tax rate in the March quarter, very different than any of us had modeled. And I get the mix of revenue between Europe and the US, et cetera, and Asia. But it sounds like something must have went differently in the quarter then you guys had forecast initially in terms of revenue mix. And if you could enlighten us on that, that would be great. Thanks, guys.

Let me answer, Matt second question about to give you a background for the revenue mix that we gained. This revenue mix came with I would say unexpected surge in revenue. We start seeing things in the second half of first year, where we, the demand of our connectivity product, we saw much stronger demand that we do. But what happened late in the year and in this quarter is that, it comes with a more comprehensive agreements with customers. They are looking for the portfolio for the technology, they're looking for architecture license, these are much more extensive product line. And in the Q1, we had kind of a concentration of these two or three large agreements in the connectivity space that basically, you know, we didn't anticipate this demand. But on the other end, it's good news, because we talk about large customers that are willing to pay and appreciate our technology. So I think that very strange mix that even for us was a surprise, we can explain that. Offering a surprise, one of the deals are million-dollar deal, many millions of dollar deal. They are the leading handset OEM. But it all happened in France, tax rate is much higher. So the concentration was almost everything in France in the first quarter. On an annual basis that will level out. I mean, it was more of actually we see it as this is something very awkward, but they had a large payment to their top line. But when we add the next couple of quarters at the same run rate that we talked about last quarter, with annual guidance, we did get 22% and said that the France has more business these days, not in the level of Q1, across the year. But if you go back to the normal mix of revenues between Israel, US, Ireland, not just France, we should be back in in more normal territory. And we have never seen that type of concentration in France yet and I don't see that repeating itself in the near future. It can happen, but it's very rare. It's very rare. So I think from a tax perspective, you know, we will have a higher tax, $1 overall the year the percentages in the next couple of quarters, we're not saying, we kept the model the same, the 22% with a higher Q1. With that said, we see the standalone before Intrinsix we already added or adding about $1 million to our prior guidance. So instead of the $106 million we're looking more like a $107 million for this year. This is CEVA standalone, higher taxes and a very solid entry into the second quarter. Gideon talked about the pipeline I mentioned what we see both in royalties and in licensing so we don't give quarterly revenue guidance, but we are looking and then feeling very comfortable with at least the licensing environment that we have control over. So over the years that itself could the close the gap or start closing the gap versus the higher Q1 taxes and if you add to that Intrinsix, which you had a good question, top line we're adding maybe $10 million of revenues in the second half. I would look at operating margins of about 10% for this type of business. And on that front, we should have a tax benefit in the US when we combine that business with CEVA. So all-in-all, that is going to be accretive based on the current model that we have today with actual Q1 and with higher taxes. And that should be able to also offset the Q1 expenses. So all-in-all, better revenues for the year, specifically with Intrinsix acquisition, if all closes in on time. And some recovery maybe even all of it, we just don't know. And we don't die for it. Yes, we just did the trends in the business. But we could see some up - some corrections in those few cents that were lost in Q1, making it either from higher revenues or just more expense monitoring and things like that and better - normal tax rates for the rest of the year.

Thanks, guys for all the details there. Really appreciated. Thank you.

Sure. Thank you, Matt.

And our next question today comes from Suji Desilva with ROTH Capital. Please go ahead.

Hi, Gideon. Hi, Yaniv. Congratulations on the Intrinsix acquisition based on your last feature acquisitions I'd be expecting good things in this one as well. Can you talk about the competition for Intrinsix and also the secure IP, the RISC-V IP what opportunities there are to take that outside of your defense market?

Hi, Suji, good morning. [Technical difficulty] The only thing that they managed to capture is the secure - question about security. Anything and the other question -

And the competition, Gideon. Gideon, the competition.

The competition, okay. So security is basically, it's a complete solution based on RISC-V, that has an outdoor, it's an outdoor based platform that was developed on few projects for the [Delpa] [ph]. And it's the security or secure IP. This is a processor IP is a very dynamic market, because threats are being developed or innovated every day and you need to find a way to somehow detect and deal with it. And increasing has this platform available. They, as a company they didn't do IP business thus far, because that's not all their focus here, they couldn't afford doing boasting. We have the platform; we have the sales channels today. In terms of competition, Rambus is a competitor. I think these are the main competitor, we'll as time goes by, we look more closely on the competitive landscape and add our own flavor to make it IP business. But for us it's an easy licensing done, because we come to the person with a basket. We have the connectivity; we have the sensors and now we are adding security into the mix.

Okay, very helpful. Thanks. And then perhaps on the current royalty rates. The wireless infrastructure market 5G infrastructure. Can you talk about how that's been trending the last - this quarter last quarter, this quarter and then what the outlook for the rest of the years including perhaps new customers coming online as well?

The trend is positive so we see the growth moving both on the year-over-year and also on a quarter-over-quarter. I would say that it's a bit slower than we thought about it and we see it across the Board, because it's a matter of the operator or capital spending on the next wave or the next services in 5G which are small sales and private network but it's moving and no question about that it will come. In terms of a customer, we have one customer, another customer who publicly shared that it goes into production in this quarter. So which that are positive.

Maybe I'll add some color, Suji you know if you look at the some other factors of the base station IoT, Bluetooth was up 84% year-over-year, and royalties in our sensor fusion was up 51% year-over-year. So, you know, these are pieces of IP that like now is Intrinsix we bought over the years. We invested there and we see the fruits in recent years. Hopefully, that's what we've seen few years from Intrinsix as well. But the overall growth in the first quarter also supposedly surprised us. And for now, there are customers, especially in the IoT space and consumer devices, TVs, robot cleaners were super strong in the first quarter, which is obviously an anomaly, because they usually for the post-Christmas quarter and that was not the case there this year with COVID around.

Okay, appreciate the color. Thanks, guys.

Thank you.

And the next question today comes from Tavy Rosner with Barclays. Please go ahead.

Hi, this is Peter Zdebski on for Tavy. Thanks for taking my question. I wondered if you could comment on the type of growth that Intrinsix has had historically and maybe your going forward expectations say one or two years out given some of these synergies and the customer overlap that you discussed earlier?

Okay, so hi, Tavy. The Intrinsix as a standalone business is a growing business. We say, I mean we saw from that, they're financially it's a consistent growth from starting from 2007 will be really turned the corner in the aerospace on demand - the aerospace and defense space is a growing space more and more spending by the DoD in semiconductor, it has highest quality than 5G from DoD standpoint, and also the highest quality than AI and the Intrinsix is basically growing by taking more project, more lucrative project. That they bring in as an inertia. Now what we are adding to this one is what we feel is IP. So when you go to the defense, we are going to present to the prospect, the customers, the IP that we have and most of them they need the DSP their all-connectivity things that we have. And the other thing that we're going to go is to go to our [technical difficulty] lot of them are now coming to us to purchase IP. And we come to them, why don't you take - we do for you the whole design including IP, because we are the expert in IP and we can combine all the - we have the most experienced and intimate understanding on the combined IP with the design around it. So that initiative that we're going to take is, and as I mentioned, they also bring in a business we're going to add the quality.

Peter, let me try to summarize, you know we are looking at on a half year for this year, we are looking at $10 million. Obviously with simple math, you could double that for next year. On top of that is the pillars that Gideon talked about the growth, will give more color after we close the deal and close to when we get closer to 2022. But there is no doubt that with CEVA onboard and bring these together, that's $20 million is, we see it as a growth driver in the next couple of years, both organic and inorganic is the combination of services and IP.

Okay, great. That's helpful color. Thank you. And then just wanted to ask about the licensing results, given that revenues were pretty strong sequentially. But the deal count was a bit lighter. Was that simply related to some of those deals last quarter that were signed, but not yet recognized in revenues?

Yeah, this is a question that we have always asked and we say that it's not that important to divide the $30 by the deal count some are not able, we are not able to recognize some specifically this quarter is a very large deal that we talked about earlier with the OEM and handset OEM, which was a multimillion-dollar deal. And at the end of the day, if you look at $14 million to $17 million, this is the first time ever that CEVA was recording $14 million and higher. It's history for us was all in the last year and on five quarters that had happened in Q4 '19 for the very first time and then again in Q1 and again now. So this is just to show that this is the combination of new markets and it is obvious and worked out well and the pipeline for us and the backlog for us for the second quarter is as strong.

Great. Thanks again and congrats on the quarter.

Thank you.

And our next question today comes from Martin Yang with Oppenheimer. Please go ahead.

Hi, Gideon and Yaniv. Thanks for taking the question. First, I want to ask about the turnkey IP business model. And can you comment on what are - how long on the design cycles? And does that usually involve just one-time fees for our customers or maybe higher royalties as they choose to go with turnkey IP?

Yeah. The timeline or the cycle, the design cycle depends on the complexity of the project. And coverage between six months to one year then this is the magnitude of the project. In terms of payment, it will be the component that we also make it familiar licensee fee for the IP, NRA for the development and all this will be higher because we combine both for the combination of the design and the IP.

Great, thanks. Can you also comment on the development of Bluetooth new LE audio? And now it's been announced for over a years now? How are the adoption rate in the market? And do you see that as a meaningful driver for your Bluetooth products?

Yeah, we deal, it does clearly, it's a big potential. The platform that we are - we announced the BlueBud support both the BLE audio and the classical Bluetooth. The BLE audio is not yet deployed in mass market, but we have a lot of legacy to support. So the BlueBud support the dual mode, which is a combination of the BLE and the classical Bluetooth. But the benefit of BLE audio is substantially higher than the classical Bluetooth is no modern one. And I think we expect this to be mainstream, but it's going to take few years.

Thanks. I have no more questions.

Thank you.

And our next question today comes from David O'Connor at Exane BNP Paribas. Please go ahead.

Great weather. Good morning, thanks for taking my question. Maybe, Gideon just going back to the Intrinsix deal. Was this, just to clarify, was the business entirely designed services as it exists today. So I imagine they get paid for NRE per design, and it's a plan to transform that existing business of theirs into more classic, stabilizing in royalties. And before you get paid per shipment versus just NRE on a design. And also then on that NRE side of things. I mean, how scalable is that? Because I mean, it's all relative to the number of engineers that you have, and the ability to kind of rapidly grow that part of the business? That's my first question. And then is a follow-up on the Ultra WideBand. Can you just give us a quick overview of the Ultra WideBand? How many customers you have today? Is this your first customer in Ultra WideBand? What the pipeline looks like? And what is the end application for this customer in terms of end market? Thank you.

Hi, David. So let me start with Intrinsix. Indeed the Intrinsix model is, you know, an NRE basis they get paid for the resources that they put in this project. The model under CEVA will be a hybrid of both story, because will continue in the primary market into this model and add licensing or IP, which is just a license fee and royalties. But when it comes to what we call the turnkey IP, here it's more of a vacant payment, meaning, higher royalties that it's more closer as you pointed out to what we do in the IP model. We'll get NRE for the project and think about the same thing that was the people in the semiconductor was doing, they take some building of the cost. So the cost could be, the payment will be higher than the cost, but it's on the back end a bit higher royalties. So that's in terms of Intrinsix. Now, we know why that is - it's a very promising space that we decided to do. We have a lead customer, we didn't finish the design, it will take us few more months to finish the design. In terms of go to the market strategy, we - that's another entry point through the mobile. We, you know, we have - what we have in the handset space, in terms of baseband. And the last quarter, we signed another big deal of connectivity, meaning, people are using our technology, not for the nice things, but also for the connectivity side Wi-Fi and Bluetooth and this was an agreement that some of it came into revenue this quarter. This was a very big agreement. And that's a way to get into the mobile ecosystem and mobile customer base to the connectivity. We provide them with a third entry point into the market. I believe that most of the flagship model will include Ultra WideBand, because people would like to see the benefit of location, precise location and the ethical FLE is just one example. To do it, I believe that they further put it in TWS and watch it because we tend to forget those monolithic case. So it's a technology that we decided to develop. We have the resources working, we have the lead customer that had feet on the direction that we do and it should be marketed with the numbers in the 1 billion as far as I recall into by 2025.

Very helpful. Thanks, Gideon. And if I could just squeeze one then for Yaniv. Yaniv, maybe I missed it, but the gross margin for Q1 that you mentioned, I think it was better than expected. What was within the mix there that drove that better-than-expected gross margins? Thanks, guys.

Sure, sometimes - two things. One, sometimes we do some type of customization or changes for customers when we license and in some projects in Q1, because most of the people got Bluetooth and Wi Fi and that's a standard almost off the shelf. We have less of a mix of R&D costs that we needed to bring up to the cost of goods. So that was one reason and that's why we had more mature deals coming out of France because that's usually 100% recognizable, with no additional work. And the second, because the DSP also was lower than the normal mix. We have less payments to the chief, to the Israeli Innovation Authority in the normal course. These are the two elements that brought up slightly, but nicely there the margins.

Understood. Thanks, guys.

Thank you.

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the call back over to the management team for the final remarks.

Thank you, Rocco. Thank you all for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8-K and accessible through the investors section of our website. With regards to upcoming conferences and events, we will be attending. We will be attending the Needham Virtual Technology and Media Conference, May 17th. Oppenheimer's 22nd Annual Israeli Conference on May the 23rd. The Cowen 49th Annual Technology Media and Telecom Conference on June 1st, and the Baird's 2021 Global Consumer Technology and Services Conference, June 8th through 10th. All of these conferences, we will be attending virtually. And for further information on this event or on all these events, we will be participating in can be found on the Investors section of our website. Thank you and goodbye.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.