CEVA Inc. Reports Third Quarter 2006 Financial Results

SAN JOSE, Calif., Oct. 25 /PRNewswire-FirstCall/ -- CEVA, Inc. (NASDAQ: CEVA)(LSE: CVA), the leading licensor of digital signal processor (DSP) cores, multimedia and storage platforms to the semiconductor industry, today announced financial results for the third quarter ended September 30, 2006.

(Logo: http://www.newscom.com/cgi-bin/prnh/20051010/CEVALOGO )

Total revenue for the third quarter of 2006 was $7.9 million, a decrease of 6% compared to $8.4 million for the third quarter of 2005. Licensing revenue for the third quarter of 2006 was $5.5 million, a decrease of 4% compared to $5.7 million for the third quarter of 2005. Royalty revenue for the third quarter of 2006 was $1.4 million, a decrease of 7% compared to $1.5 million for the third quarter of 2005. Revenue from services was $1.0 million for the third quarter of 2006, a decrease of 17% compared to $1.2 million for the third quarter of 2005.

Net income for the third quarter of 2006 was $0.3 million, compared to net loss of $0.5 million for the third quarter of 2005. Net income per share for the third quarter of 2006 was $0.02 per share compared to net loss of $0.03 per share for the third quarter of 2005. Net loss for the third quarter of 2005 did not reflect the quarterly equity-based compensation expense under Statement of Financial Accounting Standards No. 123R, "Share Based Payments" that is required to be expensed for periods commencing after January 1, 2006.

In the third quarter of 2006, the Company recognized an equity-based compensation expense of $0.5 million pursuant to the adoption of SFAS 123R. Non-GAAP net income and net income per share for the third quarter of 2006, excluding the equity-based compensation expense, was $0.9 million and $0.04, respectively. Non-GAAP net loss and non-GAAP net loss per share for the third quarter of 2005, excluding the effect of a reorganization and severance charge of $1.7 million associated with leased facility requirements and a gain of $1.5 million related to the disposal of an investment, would have been $0.4 million and $0.02, respectively.

In the third quarter of 2006, ten new license agreements were signed, bringing the total to twenty-six new license agreements signed in the first nine months of 2006. Of the ten new license agreements, seven were for CEVA DSP cores and platforms, two for CEVA SATA technology and one for CEVA Bluetooth technology. Customer target applications for these licenses are wireless, MobileTV, VoIP for optical networks and enterprise networking equipment. Geographically, one license agreement was signed in the United States, four in Europe and five in the Asia Pacific region, including Japan.

"The third quarter of 2006 was a successful quarter in terms of our growth strategy to drive new technologies into emerging markets," said Gideon Wertheizer, Chief Executive Officer of CEVA. "We secured a design win in the mobile WiMAX market with our newest DSP core, the CEVA-X1641 and positioned ourselves in the PON (Passive Optical Networks) network market with a design win for our VoIP (Voice over IP) platform at Kawasaki Microelectronics. We are also happy with the continued momentum of our DSP and Video technologies in the growing markets of MobileTV, SmartPhones and Ultra Low Cost (ULC) handsets."

Yaniv Arieli, Chief Financial Officer of CEVA, stated: "Despite a traditionally challenging third quarter in terms of licensing revenue due to the summer vacation season, we managed to achieve significant milestones with regards to reaching our profitability goals. The last time CEVA reported Non- GAAP positive operating income was six quarters ago, in the first quarter of 2005. We continue to monitor our expenses closely and put more emphasis on top line growth. Our balance sheet continues to be robust with positive overall cash flow of $0.2 million for the third quarter of 2006 and as of September 30, 2006, our total cash, investments, deposits and cash equivalents totaled $63.8 million."

CEVA Conference Call

On October 25, 2006, CEVA's management will conduct a conference call at 8:30 a.m. Eastern Time / 1:30 p.m. London time, to discuss the company's operating performance for the quarter. The conference call will be available via the following dial-in numbers:

  -- US Participants:  Dial 1-888-694-4641 (CEVA reference number # 7985458)
  -- UK/Rest of World:  Dial +44-800-032-3836 (CEVA reference number #
     7985458)

The conference call also will be available live via the Internet by accessing the CEVA web site at https://www.ceva-ip.com/ . Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

For those who cannot access the live broadcast, a replay will be available by dialing 1-877-519-4471 (passcode: 7985458) for US domestic callers and +44-800-169-3875 (passcode: 7985458) for international callers from two hours after the end of the call until 11:59 p.m. (Eastern Time) on November 1, 2006. The replay will also be available at CEVA's web site at https://www.ceva-ip.com/ .

About CEVA, Inc.

Headquartered in San Jose, Calif., CEVA is the leading licensor of digital signal processor (DSP) cores, multimedia and storage platforms to the semiconductor industry. CEVA licenses a family of programmable DSP cores, associated SoC system platforms and a portfolio of application platforms, including multimedia, audio, Voice over Packet (VoP), Serial Attached SCSI (SAS) and Serial ATA (SATA). In 2005, CEVA's IP was shipped in over 130 million devices. For more information visit https://www.ceva-ip.com/ .

Forward-Looking Statements

This press release 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. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including Mr. Wertheizer's statements about the positive implications of the new design wins and the continued momentum of CEVA's DSP and Video technologies in the growing markets of MobileTV, SmartPhones and Ultra Low Cost (ULC) handsets. Additional forward- looking statements include Mr. Arieli's statements about achieving significant milestones with regards to reaching the Company's profitability goals, monitoring the Company's expenses and putting more emphasis on top line growth. The risks, uncertainties and assumptions include: the ability of the CEVA-X line of products to continue to be a strong growth driver for the Company; intense competition within, and challenging period of growth experienced by, the industry in which the Company competes; failure of the market for the Company's technology to develop as expected, especially in the case of newly introduced or planned to be introduced technologies; the Company's ability to timely and successfully develop and introduce new technologies and penetrate new markets; the Company's reliance on revenue derived from a limited number of licensees; the Company's ability to capitalize on the lucrative personal multimedia player market; the Company's ability to realize cost savings from the GPS divestment; the Company's ability to continue its cost saving measures, and other risks relating to the Company's business, including, but not limited to, those that are described from time to time in the Company's Securities and Exchange Commission filings, including but not limited to its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and its quarterly reports filed after the Form 10-K. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

                     CEVA, INC. AND ITS SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - U.S. GAAP
             U.S. dollars in thousands, except per share data


                                Quarter ended           Nine Months ended
                                September 30,             September 30,
                               2006        2005        2006           2005
                             Unaudited   Unaudited   Unaudited     Unaudited
  Revenues:

   Licensing and royalties   $6,938      $7,169    $21,553         $24,235
   Other revenue                955       1,217      2,886           3,720

  Total revenues              7,893       8,386     24,439          27,955

  Cost of revenues              992       1,003      3,022           3,412

  Gross profit                6,901       7,383     21,417          24,543

  Operating expenses:
   Research and               4,270       5,036     14,159          15,477
    development, net
   Sales and marketing        1,414       1,619      4,791           4,855
   General and                1,577       1,399      4,535           4,481
    administrative
   Amortization of               42         191        373             632
    intangible assets
   Reorganization and             -       1,650          -           3,307
    severance charge
   Impairment of assets           -                      -             510

  Total operating expenses    7,303       9,895     23,858          29,262

  Operating loss               (402)     (2,512)    (2,441)         (4,719)
  Interest and other            778        1982      1,949           2,760
   income, net

  Income (loss) before          376        (530)      (492)         (1,959)
   taxes on income
  Taxes on income                35           -        185             160

  Net income (loss)             341        (530)      (677)         (2,119)


  Basic and diluted net
   income (loss) per share    $0.02      $(0.03)    $(0.04)         $(0.11)

   Weighted-average number
    of Common Stock used in
    computation of net
    income (loss) per share
    (in thousands):
   Basic                     19,239      18,875     19,150          18,768
   Diluted                   19,324      18,875     19,150          18,768


                     CEVA, INC. AND ITS SUBSIDIARIES
         Non-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             U.S. dollars in thousands, except per share data


                                       Quarter ended      Nine Months ended
                                       September 30,        September 30,
                                      2006       2005      2006       2005
                                  Unaudited  Unaudited  Unaudited  Unaudited

  Revenues:
   Licensing and royalties         $6,938     $7,169    $21,553    $24,235
   Other revenue                      955      1,217      2,886      3,720

  Total revenues                    7,893      8,386     24,439     27,955

  Cost of revenues                    978      1,003      2,984      3,412

  Gross profit                      6,915      7,383     21,455     24,543

  Operating expenses:
   Research and                     4,100      5,036     13,636     15,477
    development, net
   Sales and marketing              1,336      1,619      4,533      4,855
   General and                      1,328      1,399      3,693      4,481
    administrative
   Amortization of                     42        191        373        632
    intangible assets
   Total operating expenses         6,806      8,245     22,235     25,445

  Operating income (loss)             109       (862)      (780)      (902)
  Interest and other                  778        475      1,892      1,253
   income, net

  Income (loss) before                887       (387)     1,112        351
   taxes on income
  Taxes on income                      35          -        185        160

  Net income (loss)                   852       (387)       927        191

  Non-GAAP basic and
   diluted net income (loss)
   per share                         $0.04     $(0.02)     $0.05      $0.01

   Weighted-average number
    of Common Stock used in
    computation of non-GAAP
    net income (loss) per
    share (in thousands):
   Basic                           19,239     18,875     19,150     18,768
   Diluted                         19,324     18,875     19,350     19,067

The above non-GAAP condensed consolidated statements of operations have been adjusted to exclude the following items to U.S. GAAP reported net income (loss):

                                     Quarter ended        Nine Months ended
                                     September 30,          September 30,
                                     2006      2005        2006       2005
                                  Unaudited  Unaudited  Unaudited  Unaudited

  Reported net income (loss)            341     (530)       (677)   (2,119)
   per U.S. GAAP
        Adjustments
  Equity based compensation              14        -          38         -
   expense included in cost
   of revenue
  Equity based compensation             170        -         523         -
   expense included in
   research and development
   expenses
  Equity based compensation              78        -         258         -
   expense included in sales
   and marketing expenses
  Equity based compensation             249        -         842         -
   expense included in
   general and administrative
   expenses
  Interest and other income,              -   (1,507)        (57)   (1,507)
   net (1)
  Reorganization and                      -    1,650           -     3,307
   severance charge (2)
  Impairment of assets (2)                -        -           -       510
  Non-GAAP net income (loss)            852     (387)        927       191

  (1) Results for the three and nine months of 2005 included a gain of $1.5
      million reported in interest and other income related to the disposal
      of an investment. Results for the nine months of 2006 included a gain
      of $0.1 million reported in interest and other income related to the
      disposal of an investment

  (2) Results for the three and nine months ended September 30, 2005
      included a reorganization and severance charge of $1.7 million and
      $3.3 million, respectively, associated with leased facility
      requirements. Results for the nine months ended September 30, 2005
      also included a one-time impairment charge of $0.5 million principally
      arising from the Company's decision to cease the CEVA Bluetooth
      technology line. This $0.5 million was comprised of the remaining
      intangibles attributed to the Bluetooth technology of $0.4 million and
      a $0.1 million charge related to the impairment of other redundant
      assets.

These adjustments reconcile the Company's reported results of operations to the NON-GAAP results of operations. The Company believes that presentation of net income (loss) and net income (loss) per share, excluding non-cash equity-based compensation, gains related to the disposal of investments, the reorganization and severance charge and the impairment charge, provides meaningful supplemental information to investors as such a presentation allows investors to better understand the underlying business trend of the Company and how the expenses associated with the adoption of SFAS 123R are reflected in the Company's statements of operations. The Company also believes that the NON-GAAP presentation of excluding the equity-based compensation expense from its financial results for the first nine months of 2006 in comparison to its financial results for the first nine months of 2005 facilitates comparison of operating results across reporting periods since the Company's financial results for the first nine months of 2005 would not have included equity-based compensation expense. The Company uses these NON-GAAP measures when evaluating its financial results as well as for internal planning and budgeting purposes. These NON-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company's operations that, when viewed with its GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, offer a more complete understanding of factors and trends affecting the Company's business. These NON-GAAP measures should not be viewed as a substitute for the Company's reported GAAP results, and may be different than the NON-GAAP measures used by other companies.

                     CEVA, INC. AND ITS SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                        U.S. Dollars in Thousands


                                                 September 30,  December 31,
                                                     2006          2005
                                                   Unaudited      Audited
      ASSETS
  Current assets:
   Cash and cash equivalents                         $36,509       $35,111
   Marketable securities and bank
    deposits                                          27,259        26,509
   Trade receivables, net                              7,091         6,159
   Deferred tax assets                                   571           600
   Prepaid expenses                                      601         1,040
   Other current assets                                1,654         1,042
            Total current assets                      73,685        70,461
   Long-term investments:
   Severance pay fund                                  2,332         1,912
   Deferred tax assets                                   434           292
   Property and equipment, net                         1,883         3,226
   Investment                                          4,233             -
   Goodwill                                           36,498        38,398
   Other intangible assets, net                          242         1,460
            Total assets                            $119,307      $115,749


      LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
   Trade payables                                       $638          $548
   Accrued expenses and other payables                 8,629         7,778
   Taxes payable                                         331           442
   Deferred revenues                                     589           453
            Total current liabilities                 10,187         9,221

   Accrued severance pay                               2,491         2,100
   Accrued liabilities                                 1,829         2,195

            Total liabilities                         14,507        13,516

  Stockholders' equity:
  Common Stock:                                           19            19
  Additional paid in-capital                         142,062       138,818
  Accumulated deficit                                (37,281)      (36,604)
            Total stockholders' equity               104,800       102,233
            Total liabilities and
             stockholders' equity                   $119,307      $115,749

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SOURCE: CEVA, Inc.

CONTACT: Yaniv Arieli, CFO, +1-408-514-2941, or
[email protected], or Richard Kingston, +1-408-514-2976, or
[email protected], both of CEVA, Inc.

Web site: https://www.ceva-ip.com/