UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 000-49842
CEVA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
15245 Shady Grove Road, Suite 400, Rockville, MD 20850
(Address of principal executive offices)
77-0556376
(I.R.S. Employer
Identification No.)
20850
(Zip Code)
(240) 308-8328
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.001 per share
Trading Symbol(s)
CEVA
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ]
No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ]
No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes [X]
No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [X ]
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Non-accelerated filer [ ]
Smaller reporting company [ ]
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [X]
As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
$601,549,102 based on the closing sale price as reported on the National Association of Securities Dealers Automated Quotation System
National Market System on June 30, 2020. Shares of common stock held by each officer, director, and holder of 5% or more of the
outstanding common stock of the Registrant have been excluded from this calculation in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.001 par value per share
Outstanding at February 23, 2021
22,805,841 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 27, 2021 (the “2021
Proxy Statement”) are incorporated by reference into Item 5 of Part II and Items 10, 11, 12, 13, and 14 of Part III.
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TABLE OF CONTENTS
PART I
Item 1. Business ........................................................................................................................................................... 4
Item 1A. Risk Factors .................................................................................................................................................... 13
Item 1B. Unresolved Staff Comments .......................................................................................................................... 23
Item 2. Properties ....................................................................................................................................................... 23
Item 3. Legal Proceedings .......................................................................................................................................... 24
Item 4. Mine Safety Disclosures ................................................................................................................................ 24
Page
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................................ 26
Item 6. Selected Financial Data .................................................................................................................................. 28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................ 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ....................................................................... 48
Item 8. Financial Statements and Supplementary Data .............................................................................................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................ 49
Item 9A. Controls and Procedures ................................................................................................................................ 49
Item 9B. Other Information........................................................................................................................................... 50
PART III
Item 10. Directors, Executive Officers and Corporate Governance ............................................................................. 51
Item 11. Executive Compensation ................................................................................................................................ 51
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Holder Matters .... 51
Item 13. Certain Relationships and Related Transactions, and Director Independence ............................................... 51
Item 14. Principal Accountant Fees and Services ........................................................................................................ 51
PART IV
Item 15. Exhibits and Financial Statement Schedules .................................................................................................. 52
Item 16. Form 10-K Summary
56
Financial Statements ......................................................................................................................................................F-1
Signatures
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FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Annual Report 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. Forward-looking statements are generally
written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “could,” “expect,” “suggest,”
“believe,” “anticipate,” “intend,” “plan,” or other similar words. Forward-looking statements include the following:
Our belief that our licensing business is robust with a diverse customer base and a myriad of target markets;
Our belief that the licensing environment continues to be healthy with strong demand for our product portfolio
and that we will expand our market reach into new areas;
Our belief that the adoption of our wireless connectivity and smart sensing products beyond our incumbency in
the handset baseband market continues to progress, and the concluded agreements for our connectivity and
sensing products during illustrate the industry demand for our diverse IP portfolio;
Our belief that we are an incumbent player in the largest space of the semiconductor industry - mobile handsets;
Our belief that our PentaG platform for 5G handsets and 5G IoT endpoints is the most comprehensive baseband
processor IP in the industry today and provides newcomers and incumbents with a low entry barrier solution to
address the need for power 5G processing for smartphones, fixed wireless and a range of connected devices such
as robots, cars, smart cities and other devices for industrial applications;
Our belief that our specialization and technological edge in signal processing platforms for 5G base station RAN
put us in a strong position to capitalize on the growing 5G RAN across its new form factors, as well as small cells
and private networks;
Our belief that the growing market potential for voice assisted devices offers an additional growth segment for us
and that our highly-integrated platforms, plus our proven track record in audio/voice processing and connectivity,
put us in a strong position to power audio and voice roadmaps across a new range of addressable end markets;
Our belief that our SensPro™ scalable DSP architecture enables us to address the transformation in sensor devices
and expand our footprint and content in smartphones, drones, consumer cameras, surveillance, automotive ADAS,
voice-enabled devices and industrial IoT applications;
Our belief that the market opportunity for AI at the edge is on top of our existing product lines and represents new
licensing and royalty drivers for the company in the coming years;
Per research from Yole Développement, camera-enabled devices incorporating computer vision and AI are
expected to exceed 1 billion units and devices incorporating voice AI are expected to reach 620 million units by
2022;
Our belief that the Hillcrest Labs sensor fusion business unit allows us to address an important technology piece
for smart sensing;
Our belief that our Bluetooth, Wi-Fi and NB-IoT IPs allow us to expand further into IoT applications and
substantially increase our value-add and overall addressable market, which is expected to be more than 9 billion
devices annually by 2022 based on ABI Research and Ericsson Mobility Reports;
Our expectation of significant growth in royalty revenues derived from base station and IoT applications over the
next few years, which will be comprised of a range of different products at different royalty ASPs, spanning from
high volume Bluetooth to high value sensor fusion and base station RAN, and that royalty ASP of our other
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products will be in between the two ranges;
Our expectations regarding competition;
Our expectation that a significant portion of our future revenues will continue to be generated by a limited number
of customers and that international customers will continue to account for a significant portion of our revenues for
the foreseeable future;
Our anticipation that our research and development expenses will continue to increase in 2021;
Our anticipation that cost of revenues will increase in 2021 as compared to 2020 in the amount of approximately
$0.5 million, due to more cost of chip sales for our Hillcrest Labs related business;
Our anticipation that our cash and cash equivalents, short-term bank deposits and marketable securities, along
with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months;
Our belief that changes in interest rates within our investment portfolio will not have a material effect on our
financial position on an annual or quarterly basis;
Our expectations regarding the impact of COVID-19 on our business, operations, customers and the economy;
and
Our beliefs about future exchange rates, including our expectation that based on trends to date, in 2021 we will
have additional exchange rate expenses as compared to 2020 in the event of the ongoing devaluation of the U.S.
dollar compared to the Shekel and Euro.
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The
forward-looking statements contained in this report are based on information that is currently available to us and
expectations and assumptions that we deem reasonable at the time the statements were made. We do not undertake any
obligation to update any forward-looking statements in this report or in any of our other communications, except as required
by law. All such forward-looking statements should be read as of the time the statements were made and with the recognition
that these forward-looking statements may not be complete or accurate at a later date.
Many factors may cause actual results to differ materially from those expressed or implied by the forward-looking
statements contained in this report. These factors include, but are not limited to, those risks set forth in Item 1A: Risk
Factors.
This report contains market data prepared by third party research firms. Actual market results may differ from their
projections. This report includes trademarks and registered trademarks of CEVA. Products or service names of other
companies mentioned in this Annual Report on Form 10-K may be trademarks or registered trademarks of their respective
owners.
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ITEM 1. BUSINESS
Company Overview
PART I
Headquartered in Rockville, Maryland, CEVA is the leading licensor of wireless connectivity and smart sensing
technologies. We offer Digital Signal Processors, AI processors, wireless platforms and complementary software for sensor
fusion, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling
technologies for a smarter, more connected world. We partner with semiconductor companies and OEMs worldwide to
create power-efficient, intelligent and connected devices for a range of end markets, including mobile, consumer,
automotive, robotics, industrial and IoT. Our ultra-low-power IPs include comprehensive platforms comprised of
specialized DSPs coupled with an AI and other types of accelerators targeted for low power workloads, including 5G
baseband processing, intelligent vision, voice recognition, physical layer processing and sensor fusion. We also offer high
performance DSPs targeted for 5G RAN and Open RAN, Wi-Fi enterprise and residential access points, satellite
communication and other multi-gigabit communications. Our portfolio also includes a wide range of application software
optimized for our processors, including voice front-end processing and speech recognition, imaging and computer vision
and sensor fusion. For sensor fusion, our Hillcrest Labs sensor processing technologies provide a broad range of sensor
fusion software and inertial measurement unit (“IMU”) solutions for AR/VR, robotics, remote controls and IoT. For wireless
IoT, we offer the industry’s most widely adopted IPs for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax)
and NB-IoT.
CEVA is a sustainable and environmentally conscious company, adhering to our Code of Business Conduct and
Ethics. As such, we emphasize and focus on environmental preservation, recycling, the welfare of our employees and
privacy – which we promote on a corporate level. At CEVA, we are committed to social responsibility, values of
preservation and consciousness towards these purposes.
Our technologies are licensed to leading semiconductor and OEM companies throughout the world. These
companies incorporate our IP into application-specific integrated circuits (“ASICs”) and application-specific standard
products (“ASSPs”) that they manufacture, market and sell into wireless, consumer, automotive and IoT companies. Our
state-of-the-art technology has shipped in more than 12 billion chips to date for a wide range of diverse end markets. One
in four handsets sold worldwide is powered by CEVA.
Our revenue mix comprises primarily of IP licensing fees and related revenues, and royalties generated from the
shipments of products deploying our IP. Related revenues include revenues from post contract support, training and sale of
development systems and chips.
We were initially incorporated in Delaware on November 22, 1999 under the name DSP Cores, Inc. The current
company was created through the combination of the DSP IP licensing division of DSP Group, Inc. and Parthus
Technologies plc (“Parthus”) in November 2002.
We have 404 employees worldwide, with research and development facilities in Israel, France, the United States,
Ireland and the United Kingdom, and sales and support offices throughout Asia Pacific (APAC), Sweden, France, Israel
and the United States.
Industry Background
DSP Cores
Digital signal processing is a key underlying technology in many of today's fastest growing electronics markets.
Digital signal processors (DSPs) are specialized high-speed processors that are optimized for performing repetitive
arithmetic calculations on an array of data. DSPs provide the foundation for a vast majority of today's electronic products
that are smart and connected, enabling the sensing and wireless communications capabilities (e.g. 5G baseband and RAN
processing, computer vision, deep neural network, sound processing and analytics).
Edge AI Hybrid Processors
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Edge AI Hybrid processors are a new breed of processors targeted at cost- and power-sensitive intelligent devices
that use interchangeable workloads of traditional DSP and AI inferencing algorithms to enable intelligent vision,
conversational AI, sensor fusion and contextual awareness. The DSP is used to process conventional algorithms for imaging,
vision, voice, sound, radar, among others, while the AI-related workloads such as classification, pattern matching, prediction
and detection are handled by a combination of DSPs and AI accelerators. These edge AI hybrid processors perform all AI
inferencing on the device, with no need for cloud-based processing. These processors aim to mimic the human brain,
allowing them to perform cognitive tasks for a wide range of functions, including vision, sound, real-time translation, user
behavior and malware detection. Edge AI processors will make their way into billions of devices in the coming years,
including mobile, consumer, medical, industrial and automotive applications.
Short Range Wireless IPs
Wi-Fi and Bluetooth low energy and dual mode are key technologies for any company looking to address the
Internet-of-Things (“IoT”). Moreover, many companies wish to integrate these connectivity technologies into SoC designs
rather than provide connectivity through an additional chip in the system. Yet, Wi-Fi and Bluetooth standards are constantly
evolving, and the many new end applications are looking to benefit from these enhancements, which put further pressure
on time to market on SoC vendors. The advent of IoT has resulted in significant demand for connectivity IPs that addresses
this burgeoning market, among which are smart True Wireless Stereo earbuds, sport trackers, smart watches, smart speakers,
and many other consumer and IoT devices. By licensing rather than developing these technologies in-house, companies can
now get access to the latest standards and profiles from CEVA without undertaking the expensive research and development
costs required to develop these technologies internally.
Cellular IoT IPs
Cellular IoT, and specifically Narrowband IoT (NB-IoT) and Cat-1, are becoming key technologies for any
company wishing to connect low power IoT devices over long distances, using cellular networks. By its nature, cellular is
a very complex technology, with most of the industry knowledge held within a few large companies. By providing a
licensable NB-IoT solution and low power DSP cores, we help companies overcome the entry barriers to the cellular IoT
market without undertaking the complex and expensive R&D to develop these technologies internally.
Sensor Fusion
MEMS-based inertial and environmental sensors are used in an increasing number of devices, including
smartphones, laptops, robots, TWS earbuds, smartTVs, remote controls, AR and VR headsets, drones and many other
consumer and industrial devices. The software required to process the sensor data and fuse the data from multiple sensors
is complex and requires unique specialization. By licensing rather than developing this sensor processing software in-house,
companies can focus their efforts developing the applications that utilize the processed sensor data to create differentiated,
contextually aware devices.
Design Gap
The demand for connected and smart mobile, consumer, automotive, industrial and IoT devices continues to grow.
These devices require faster and low power connectivity, and a richer user experience that is aware and predictive.
Semiconductor manufacturers face ever growing pressures to make smaller, feature-rich integrated circuits that are more
reliable, less expensive and have greater performance. These two trends are occurring concurrently in the face of decreasing
product lifecycles and constrained battery power. The advent of wireless connectivity technologies like 5G, Wi-Fi 6 and
Bluetooth 5 and the diverse sensor related workloads required to make a device smart, such as advanced image enhancement,
computer vision, AI inferencing, voice and audio pre- and post- processing and motion sensor fusion have further increased
these pressures. While semiconductor manufacturing processes have advanced significantly to allow a substantial increase
in the number of circuits placed on a single chip, resources for design capabilities have not kept pace with the advances in
manufacturing processes, resulting in a growing “design gap” between the increasing manufacturing potential and the
constrained design capabilities.
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CEVA’s Business
CEVA addresses the requirements of the mobile, consumer, automotive, robotics, industrial and IoT markets by
designing and licensing a broad range of robust processors, platforms and software which streamline the design of solutions
for developing a wide variety of application specific solutions that combine connectivity and smart sensing that involve
primarily camera, microphone and IMU.
Given the “design gap,” as well as the increasing complexity and the unique skill set required to develop a system-
on-chip, many semiconductor design and manufacturing companies increasingly choose to license proven intellectual
property, such as processor cores (e.g. DSP, CPU, GPU and AI), specialized connectivity software algorithms like sensor
fusion, sound, memory and physical IPs from silicon intellectual property (SIP) companies like CEVA rather than develop
those technologies in-house. In addition, with more complex designs and shorter time to market, it is no longer cost efficient
and becoming progressively more difficult for most semiconductor companies to develop the signal processing platform,
incorporating the complex DSPs like scalar, vector, AI accelerators and related graph compiler, data connectivity modem
and phy platforms. As a result, companies increasingly seek to license these IPs from CEVA or a third-party community
of developers.
Our IP Business Model
Our objective is for our CEVA wireless connectivity and smart sensing platforms to become the de facto
technologies across the mobile, consumer, automotive, robotics, industrial and IoT markets. To enable this goal, we license
our technologies on a worldwide basis to semiconductor and OEM companies that design and manufacture products that
combine CEVA-based solutions with their own differentiating technology. We believe our business model offers us some
key advantages. By not focusing on manufacturing or selling silicon products, we are free to widely license our technology
and free to focus most of our resources on research and development. By choosing to license our IP, manufacturers can
achieve the advantage of creating their own differentiated solutions and develop their own unique product roadmaps.
Through our licensing efforts, we have established a worldwide community developing CEVA-based solutions, and
therefore we can leverage their strengths, customer relationships, proprietary technology advantages, and existing sales and
marketing infrastructure. In addition, as our intellectual property is widely licensed and deployed, system OEM companies
can obtain CEVA-based chipsets from a wide range of suppliers, thus reducing dependence on any one supplier and fostering
price competition, both of which help to contain the cost of CEVA-based products.
We operate a licensing and royalty business model. We typically charge a license fee for access to our hardware
technology and a royalty fee for each unit of silicon which incorporates our hardware or software technology. License fees
are invoiced in accordance with agreed-upon contractual terms. Royalties are reported and invoiced quarterly and generally
based on a fixed unit rate or a percentage of the sale price for the CEVA-based silicon product.
Strategy
We believe there is a growing demand for high performance and low power signal processing IPs and specialized
AI platforms and software incorporating all the necessary hardware and software for target applications. Our IP portfolio is
strategically aligned to allow us to exploit the most lucrative “design gaps” in the growing demand for smarter, connected
devices. As CEVA offers expertise developing complete solutions in a number of key growth markets, including, 5G cellular
baseband, wireless wearables, robots, automotive and IoT. For these markets, we offer a comprehensive portfolio of
connectivity and smart sensing, which include various types of specialized DSPs and platforms for 5G, computer vision,
sound, AI, Wi-Fi, Bluetooth, NB-IoT solutions, sensor fusion and sound. We believe we are well positioned to take full
advantage of this growing demand. To capitalize on this industry shift, we intend to:
develop and enhance our range of DSP cores and edge AI hybrid processors with additional features,
performance and capabilities;
develop and expand our short range wireless IPs and customer base, providing the newest standards and the
most complete offerings to streamline our customers’ deployments;
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continue to develop new generation of high performance DSPs and AI accelerators to pursue opportunities and
grow our footprint in the 5G handset, cellular IoT base station RAN market, automotive and headsets;
go up the ‘value chain’ by adding and charging for software for our voice our audio and IMU (Inertial
Measurement Units) products
expand our presence in AI for edge SoC market by capitalizing on our AI accelerators and CDNN graph
compiler software technologies;
continue to develop and enhance our range of complete and highly integrated platform solutions to deliver to
our licensing partners a complete and verified system solution;
continue to prudently invest in strategic technologies that enable us to strengthen our presence in existing market
or enter new addressable markets;
capitalize on our relationships and leadership within our worldwide community of semiconductor and OEM
licensees who are developing CEVA-based solutions;
capitalize on our technology leadership in the development of advanced processor technologies, connectivity
IPs and sensor fusion software to create and develop new, strategic relationships with OEMs and semiconductor
companies to replace their internal DSPs or incumbent DSP suppliers with CEVA-based solutions; and
capitalize on our IP licensing and royalty business model which we believe is the best vehicle for a pervasive
adoption of our technology and allows us to focus our resources on research and development of new licensable
technologies and applications.
Products
We are the leading licensor of wireless connectivity and smart sensing platforms for semiconductor companies and
OEMs serving the mobile, consumer, automotive, robotics, industrial and IoT markets. Our ultra-low-power IPs include
comprehensive platforms comprised of application-specific DSPs and optimized AI accelerators for a holistic combination
of classical DSP algorithm and data driven AI workloads in low power edge devices. We also offer comprehensive
Bluetooth, WiFi and NB-IOT solutions to enable connectivity in wearables, smart home, medical and IoT devices. In
addition, we offer a wide range of application software optimized for our processors, including voice front-end processing
and speech recognition, imaging and computer vision and sensor fusion. For sensor fusion, our Hillcrest Labs sensor
processing technologies provide a broad range of sensor fusion software and IMU solutions for AR/VR, robotics, remote
controls, and IoT. Our categories of products include the following:
1) Wireless communications
CEVA-XC vector DSPs for 5G handsets, gNodeB, 5G AAU and RRU systems, V2X, enterprise and
residence Wi-Fi access points
PentaG - 5G NR modem platform for UE and for non-handset 5G vertical markets like Fixed-Wireless-
Access, Industry 4.0, robotics, AR/VR devices that requires ultra-low-latency systems
2) AI and computer vision
SensPro2 imaging and computer vision platforms, including DSP processors and a comprehensive
software portfolio
NeuPro platforms for AI applications, including DSP and integrated accelerators
CDNN: deep neural network graph compiler that enables AI developers to automatically compile,
optimize and run pre-trained networks onto embedded devices
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3) Sound
CEVA-BX1, CEVA-BX2 and SenSpro2 DSPs, AI accelerators, algorithms and software for sound-
enabled application, including Whispro speech recognition and ClearVox, a complete voice front-end
software package for near and far-field voice-enabled devices
Deep neural network compiler and tools
4) Sensor Fusion
MotionEngine, Sensor processing software, combining high accuracy 6-axis and 9-axis sensor fusion,
dynamic sensor calibration, and many application specific features such as cursor control, gesture
recognition, activity tracking, context awareness, and AR/VR stabilization
Sensor Hub DSPs, that serve as a hub for AI and DSP processing workloads associated with a wide
range of sensors including camera, Radar, LiDAR, Time-of-Flight, microphones and inertial
measurement units (IMUs)
5) Multipurpose DSP/controller
CEVA-BX high level programmable, modern processors for a broad range of signal processing and
control workloads
6) Wireless IoT
RivieraWaves’ Bluetooth 5 (up to 5.2) dual mode and low energy platforms
RivieraWaves’ Wi-Fi (4/5/6 up to 4x4) platforms
Dragonfly NB2 - complete end-to-end offering for narrowband IoT (NB-IoT)
We deliver our DSP cores, platforms and AI processors in the form of a hardware description language definition
(known as a soft core or a synthesizable core). All CEVA cores can be manufactured on any process using any physical
library, and all are accompanied by a complete set of tools and an integrated development environment. An extensive third-
party network supports CEVA DSP cores, platforms and AI processors with a wide range of complementing software and
platforms. In addition, we provide development platforms, software development kits and software debug tools, which
facilitate system design, debug and software development.
In order to reduce the cost, complexity, and risk in bringing products to market, CEVA has developed a suite of
system platforms and solutions. These platforms and solutions combine the hardware and software elements that are
essential for designers deploying CEVA’s state-of-the-art DSP cores, platforms and AI processors. Platforms typically
integrate a CEVA DSP core, hardware accelerators and coprocessors, optimized software, libraries and tool chain. Our
family of DSP-based platforms are targeted for baseband processing within cellular handsets, cellular IoT devices and base
stations RAN, wired communications, advanced imaging, computer vision and deep neural networks, and audio, voice and
sensing and Internet-of-Things related applications.
Customers
We have licensed our signal processing cores, platforms, AI processors and connectivity IPs to leading
semiconductor and OEM companies throughout the world. These companies incorporate our IP into application-specific
chipsets or custom-designed chipsets that they manufacture, market and sell to consumer electronics companies. We also
license our technologies to OEMs directly. Included among our licensees are the following customers: Actions, Artosyn,
ASR Micro, Atmosic, Autotalks, Beken, Bestechnic, Broadcom, Celeno, Ceragon, Cirrus Logic, Dialog Semiconductor,
DSP Group, Espressif, FujiFilm, GCT Semi, iCatch, InPlay, Intel, iRobot, Itron, Leadcore, LG Electronics, Mediatek,
Microchip, MorningCore, Nextchip, Nokia, Novatek, Nurlink, NXP, ON Semiconductor, Optek, Oticon, Panasonic, RDA,
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Renesas, Rockchip, Rohm, Samsung, Sanechips, Sharp, SiFive, Siflower, SigmaStar, Socionext, Sony, Sonova,
STMicroelectronics, Toshiba, Unisoc, Vatics, Yamaha and ZTE.
International Sales and Operations
Customers based in EME (Europe and Middle East) and APAC (Asia Pacific) accounted for 79% of our total
revenues for 2020, 81% of our total revenues for 2019 and 89% for 2018. Information on the geographic breakdown of our
revenues and location of our long-lived assets is contained in Note 12 to our consolidated financial statements, which appear
elsewhere in this annual report.
Sales and Marketing
We license our technology through a direct sales force. As of December 31, 2020, we had 35 employees in sales
and marketing. We have sales offices and representation in Asia Pacific (APAC) region, Sweden, Israel, France and the
United States.
Maintaining close relationships with our customers and strengthening these relationships are central to our strategy.
From time to time we develop a new signal processors, platforms, software solutions or connectivity products with close
alignment with a number of tier-one industry players which signifies to the market that we are focused on viable applications
that meet broad industry needs or try to get similar inputs and insight for our new developments from our marketing team.
Generally, these industry leaders become licensees for these products allows us to create a roadmap for the future
development of existing cores and application platforms and connectivity products, and helps us to anticipate the next
potential applications for the market. We seek to use our customer relationships to deliver new products in a faster time to
market.
We use a variety of marketing initiatives to stimulate demand and brand awareness in our target markets. These
marketing efforts include contacts with industry analysts, presenting at key industry trade shows and conferences, and a
comprehensive digital marketing program aimed at developing and nurturing relationships with potential customers. Our
marketing group runs competitive benchmark analyses to help us maintain our competitive position.
Technical Support
We offer technical support services through our offices in Israel, Ireland, Asia Pacific (APAC) region, Sweden,
France and the United States. As of December 31, 2020, we had 31 employees in technical support. Our technical support
services include:
assistance with implementation, responding to customer-specific inquiries, training and, when and if they
become available, distributing updates and upgrades of our products;
application support, consisting of providing general hardware and software design examples, ready-to-use
software modules and guidelines to our licensees to assist them in using our technology; and
design services, consisting of creating customer-specific implementations of our signal processing IPs and
application platforms.
We believe that our technical support services are a means to assist our licensees to embed our cores and platforms
in their designs and products. Our technology is highly complex, combining sophisticated signal processing IP core
architectures, integrated circuit designs and development tools. Effective customer support in helping our customers to
implement our solutions enables them to shorten the time to market for their applications. Our support organization is made
up of experienced engineers and professional support personnel. We conduct technical training for our licensees and their
customers, and meet with them from time to time to track the implementation of our technology.
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Research and Development
Our research and development team is focused on improving and enhancing our existing products, as well as
developing new products to broaden our offerings and market opportunities. These efforts are largely driven by current and
anticipated customer and market needs.
Our research and development team, consisting of 304 engineers as of December 31, 2020, work in eight
development centers located in Israel, France, the United States, Ireland and the United Kingdom. This team consists of
engineers who possess significant experience in developing DSP cores and tools for 5G, computer vision, AI, connectivity
products (Wi-Fi and Bluetooth), NB-IoT, and sensor processing and sensor fusion software. In addition, we engage third
party contractors with specialized skills as required to support our research and development efforts.
We encourage our research and development personnel to maintain active roles in various international
organizations that develop and maintain standards in the electronics and related industries. This involvement allows us to
influence the development of new standards; keeps us informed as to important new developments regarding standards; and
allows us to demonstrate our expertise to existing and potential customers who also participate in these standards-setting
bodies.
Competition
The markets in which we operate are intensely competitive. They are subject to rapid change and are significantly
affected by new product introductions. We compete with other suppliers of licensed signal processing IPs. We believe that
the principal competitive elements in our field are signal processing IP performance, overall chip cost, power consumption,
flexibility, reliability, communication and multimedia software and algorithms availability, design cycle time, tool chain,
customer support, financial strength, name recognition and reputation. We believe that we compete effectively in each of
these areas, but can offer no assurance that we will have the financial resources, technical expertise, and marketing or
support capabilities to compete successfully in the future.
The markets in which we compete are dominated by large, highly competent semiconductor companies that have
significant brand recognition, a large installed base and a large network of support and field application engineers. We face
direct and indirect competition from:
IP vendors that offer programmable or configurable DSP cores;
IP vendors that offer vision processing units for computer vision applications;
IP vendors that offer neural network processing units for AI applications;
IP vendors that offer voice software packages, including beamforming, direction of arrival and echo
cancellation;
IP vendors that offer Bluetooth and Wi-Fi connectivity IPs;
IP vendors that offer hardware-based DSP implementation as opposed to software-based DSP, which is our
specialization;
internal design groups of large chip companies or OEMs that develop proprietary signal processing IP cores or
engines for their own application-specific chipsets; and
internal design groups of large chip companies or OEMs that develop proprietary sensor processing and sensor
fusion software for sale as part of a chip or for their own application-specific chipsets.
We face direct competition in the DSP and configurable core space mainly from Verisilicon, Cadence and Synopsys,
which licenses DSP cores in addition to their respective semiconductor and EDA businesses. In AI processors, we face
direct competition from EDA players in addition to a host of companies offering AI cores and accelerators such as ARM,
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(acquired by SoftBank), AImotive, Digital Media Professionals, (DMP), Imagination Technologies (acquired by Canyon
Bridge). In the short-range wireless space, we face direct competition from Mindtree.
In recent years, we also have faced competition from companies that offer Central Processor Unit (CPU) intellectual
property. These companies’ products are used for host functions in various applications, such as in mobile and home
entertainment products. These applications typically also incorporate a programmable DSP or neural network accelerator
that is responsible for communication and video/audio/voice-related tasks, neural network or in some cases connectivity
capabilities. CPU companies, such as ARM, Cadence, and Synopsys have added DSP acceleration, CNN acceleration and
/or connectivity solutions and make use of it to provide platform solutions in the areas of baseband, video, imaging, vision,
AI, audio and connectivity.
With respect to certain large potential customers, we also compete with internal engineering teams, which may
design programmable signal processing IP core products in-house. Companies such as Mediatek, Qualcomm, Samsung,
Huawei and STMicroelectronics license our designs for some applications and use their own proprietary cores for other
applications. These companies also may choose to license their proprietary signal processing IP cores to third parties and,
as a result, become direct competitors.
Aside from the in-house research and development groups, we do not compete with any individual company across
the range of our market offerings. Within particular market segments, however, we do face competition to a greater or lesser
extent from other industry participants. For example, in the following specific areas we compete with the companies
indicated:
in the digital embedded imaging and vision market –Arm Limited, Synopsys, Cadence and Videantis, as well
as GPU IP providers such as Arm Limited, Imagination Technologies and Verisilicon; and
in audio and voice applications market – Arm Limited, Cadence, Synopsys and Verisilicon.
Proprietary Rights
Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of
our intellectual property and to operate without infringing the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions to protect the proprietary aspects of our
technology. These legal protections afford only limited protection of our technology. We also seek to limit disclosure of
our intellectual property and trade secrets by requiring employees and consultants with access to our proprietary information
to execute confidentiality agreements with us and by restricting access to our source code and other intellectual property.
Due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel,
new product developments and enhancements to existing products are more important than specific legal protections of our
technology in establishing and maintaining a technology leadership position.
We have an active program to protect our proprietary technology through the filing of patents. Our patents relate
to our signal processing IP cores and application-specific platform technologies. As of December 31, 2020, we hold
59 patents in the United States, five patents in Canada, 88 patents in the EME (Europe and Middle East) region and 10
patents in Asia Pacific (APAC) region, totaling 162 patents, with expiration dates between 2021 and 2038. In addition, as
of December 31, 2020, we have two patent applications pending in the United States, two pending patent applications in
Canada, six pending patent applications in the EME region and five pending patent applications in the APAC region, totaling
15 pending patent applications.
We actively pursue foreign patent protection in countries where we feel it is prudent to do so. Our policy is to apply
for patents or for other appropriate statutory protection when we develop valuable new or improved technology. The status
of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. Accordingly, there
are no assurances that any patent application filed by us will result in a patent being issued, or that our issued patents, and
any patents that may be issued in the future, will afford us adequate protection against competitors with similar technology;
nor can we be assured that patents issued to us will not be infringed or that others will not design around our technology. In
addition, the laws of certain countries in which our products are or may be developed, manufactured or sold may not protect
our products and intellectual property rights to the same extent as the laws of the United States. We can provide no assurance
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that our pending patent applications or any future applications will be approved or will not be challenged by third parties,
that any issued patents will effectively protect our technology, or that patents held by third parties will not have an adverse
effect on our ability to do business.
The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property
rights. Questions of infringement in the semiconductor field involve highly technical and subjective analyses. In addition,
patent infringement claims are increasingly being asserted by patent holding companies (so-called patent “trolls”), which
do not use technology and whose sole business is to enforce patents against companies, such as us, for monetary gain.
Because such patent holding companies do not provide services or use technology, the assertion of our own patents by way
of counter-claim may be ineffective. Litigation may in the future be necessary to enforce our patents and other intellectual
property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. We cannot assure you that we would be able to prevail in any such
litigation, or be able to devote the financial resources required to bring such litigation to a successful conclusion.
In any potential dispute involving our patents or other intellectual property, our licensees also could become the
targets of litigation. We are generally bound to indemnify licensees under the terms of our license agreements. Although
our indemnification obligations are generally subject to a maximum amount, these obligations could nevertheless result in
substantial expenses. In addition to the time and expense required for us to indemnify our licensees, a licensee’s
development, marketing and sale of products embodying our solutions could be severely disrupted or shut down as a result
of litigation.
We also rely on trademark, copyright and trade secret laws to protect our intellectual property. We have registered
trademark in the United States for our name CEVA and the related CEVA logo, and currently market our signal processing
cores and other technology offerings under this trademark.
Human Capital Resources
The table below presents the number of employees of CEVA as of December 31, 2020 by function and geographic
location.
Total employees
Function
Research and development
Sales and marketing
Administration
Technical support
Location
Israel
France
Ireland
China
United States
United Kingdom
Elsewhere
Number
404
304
35
34
31
253
48
13
19
38
17
16
Our employees are not represented by any collective bargaining agreements, and we have never experienced a work
stoppage. We believe our employee relations are good.
A number of our employees are located in Israel. Certain provisions of Israeli law and the collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic
Organizations (the Israeli federation of employers’ organizations) apply to our Israeli employees.
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In 2004, we finalized and adopted a new Code of Business Conduct and Ethics regarding the standards of conduct
of our directors, officers and employees. The code is reviewed and updated periodically by our Board or Directors and is
available on our website at www.ceva-dsp.com. In 2020, we completed and published on our website our Sustainability
Policy. We strive to be a responsible and respected global corporate citizen and a more sustainable company in the countries
where we have operations and employees. Our policy addresses the topics of (1) data privacy and security; (2) our
environmental policy; (3) resource conservation and recycling; and (4) our employees.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of
charge, on our website at www.ceva-dsp.com, as soon as reasonably practicable after such reports are electronically filed
with the Securities and Exchange Commission and are also available on the SEC’s website at www.sec.gov.
Our website and the information contained therein or connected thereto are not intended to be incorporated into this
Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
We caution you that the following important factors, among others, could cause our actual future results to differ
materially from those expressed in forward-looking statements made by or on behalf of us in filings with the Securities and
Exchange Commission, press releases, communications with investors and oral statements. Any or all of our forward-
looking statements in this annual report, and in any other public statements we make, may turn out to be wrong. They can
be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors
mentioned in the discussion below will be important in determining future results. We undertake no obligation to publicly
update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make in our reports filed with the Securities and Exchange Commission.
The COVID-19 pandemic, or other outbreak of disease or similar public health threat, could materially and adversely affect
our business, financial condition and results of operations.
The COVID-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the virus,
and these measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of
our respective vendors and suppliers. Furthermore, the outbreak has significantly increased economic and demand uncertainty and
negatively impacted consumer confidence. Any shortfall in consumer spending or demand for consumer electronic products, such as
due to social distancing and other restrictions, may negatively affect our business and results of operations.
The spread of COVID-19 also has caused us to modify our business practices, and we may take further actions as may be
required by government authorities or that we determine are in the best interests of our employees, customers, and communities. Such
actions may result in further disruptions to our supply chain, operations and facilities, and workforce. We cannot assure you that such
measures will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions could be harmed.
We cannot at this time quantify or forecast the full business impact of COVID-19. The degree to which COVID-19 impacts
our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, and to what
extent normal economic and operating conditions can resume.
The markets in which we operate are highly competitive, and as a result we could experience a loss of sales, lower prices and
lower revenues.
The markets for the products in which our technology is incorporated are highly competitive. Aggressive competition could
result in substantial declines in the prices that we are able to charge for our intellectual property or lose design wins to competitors.
Many of our competitors are striving to increase their share of the growing signal processing IP markets and are reducing their licensing
and royalty fees to attract customers. The following industry players and factors may have a significant impact on our competitiveness:
we compete directly in the signal processing cores space with Verisilicon, Cadence and Synopsys;
we compete with CPU IP or configurable CPU IP (offering DSP configured CPU and/or DSP acceleration and/or
connectivity capabilities to their IP) providers, such as ARM (in the process of being acquired by NVidia), Synopsys
and Cadence and the RISC-V open source;
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we compete with internal engineering teams at companies such as Mediatek, Qualcomm, Samsung, Huawei and NXP
that may design programmable DSP core products and signal processing cores in-house and therefore not license our
technologies;
we compete in the short range wireless markets with Mindtree, Synopsys and internal engineering teams at companies
such as Cypress (now part of Infineon), Silicon Labs, NXP;
we compete in embedded imaging and vision market with Cadence, Synopsys, Videantis, Verislicon, ARM and
Verisilicon;
we compete in AI processor marketing with AI processor and accelerator providers, including AImotive, Arm Limited,
Cadence, Synopsys, Cambricon, Digital Media Professionals (DMP), Imagination Technologies, Nvidia open source
NVDLA and Verisilicon; and
we compete in the audio and voice applications market with Arm Limited, Cadence, Synopsys and Verisilicon.
In addition, we may face increased competition from smaller, niche semiconductor design companies in the future. Some of
our customers also may decide to satisfy their needs through in-house design. We compete on the basis of signal processing IP
performance, overall chip cost, power consumption, flexibility, reliability, communication and multimedia software availability, design
cycle time, tool chain, customer support, name recognition, reputation and financial strength. Our inability to compete effectively on
these bases could have a material adverse effect on our business, results of operations and financial condition.
Our quarterly operating results fluctuate from quarter to quarter due to a variety of factors, including our lengthy sales cycle,
and may not be a meaningful indicator of future performance.
In some quarters our operating results could be below the expectations of securities analysts and investors, which could cause
our stock price to fall. Factors that may affect our quarterly results of operations in the future include, among other things:
the gain or loss of significant licensees, partly due to our dependence on a limited number of customers generating a
significant amount of quarterly revenues;
any delay in execution of any anticipated licensing arrangement during a particular quarter;
delays in revenue recognition for some license agreements based on percentage of completion of customized work or
other accounting reasons;
the timing and volume of orders and production by our customers, as well as fluctuations in royalty revenues resulting
from fluctuations in unit shipments by our licensees;
royalty pricing pressures and reduction in royalty rates due to an increase in volume shipments by customers, end-
product price erosion and competitive pressures;
earnings or other financial announcements by our major customers that include shipment data or other information
that implicates expectations for our future royalty revenues;
the mix of revenues among licensing and related revenues, and royalty revenues;
the timing of the introduction of new or enhanced technologies by us and our competitors, as well as the market
acceptance of such technologies;
the discontinuation, or public announcement thereof, of product lines or market sectors that incorporate our technology
by our significant customers;
our lengthy sales cycle and specifically in the third quarter of any fiscal year during which summer vacations slow
down decision-making processes of our customers in executing contracts;
delays in the commercialization of end products that incorporate our technology;
currency fluctuations, mainly the EURO and the NIS versus the U.S. dollar;
fluctuations in operating expenses and gross margins associated with the introduction of, and research and
development investments in, new or enhanced technologies and adjustments to operating expenses resulting from
restructurings;
the approvals, amounts and timing of Israeli research and development government grants from the Israeli Innovation
Authority of the Ministry of Economy and Industry in Israel (the “IIA”), EU grants and French research tax credits;
the impact of new accounting pronouncements, including the new revenue recognition rules;
the timing of our payment of royalties to the IIA, which is impacted by the timing and magnitude of license agreements
and royalty revenues derived from technologies that were funded by grant programs of the IIA;
statutory changes associated with research tax benefits applicable to French technology companies;
our ability to scale our operations in response to changes in demand for our technologies;
entry into new end markets that utilize our signal processing IPs, software and platforms;
changes in our pricing policies and those of our competitors;
restructuring, asset and goodwill impairment and related charges, as well as other accounting changes or adjustments;
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general political conditions, including global trade wars resulting from tariffs and business restrictions and bans
imposed by government entities, like the well publicized 2018 ban associated with ZTE, as well as other regulatory
actions and changes that may adversely affect the business environment;
general economic conditions, including the current economic conditions, and its effect on the semiconductor industry
and sales of consumer products into which our technologies are incorporated;
delays in final product delivery due to unexpected issues introduced by our service or EDA tool providers;
delays in ratification of standards for Bluetooth, Wi-Fi or NB-IoT that can affect the introduction of new products;
constraints on chip manufacturing capacity due to high demand or shutdowns of FABs and other manufacturing
facilities; and
reductions in demand for consumer and digital devices due to lockdowns or overall financial difficulties resulting
from the ongoing COVID-19 pandemic.
Each of the above factors is difficult to forecast and could harm our business, financial condition and results of operations.
Also, we license our technology to OEMs and semiconductor companies for incorporation into their end products for consumer markets,
including handsets and consumer electronics products. The royalties we generate are reported by our customers.
Our royalty revenues are affected by seasonal buying patterns of consumer products sold by OEMs, partially by our direct
customers and partially by semiconductor customers that incorporate our technology into their end products and the market acceptance
of such end products. The first quarter in any given year is usually a sequentially down quarter for us in relation to royalty revenues as
this period represents lower post-Christmas fourth quarter consumer product shipments. However, the magnitude of this first quarter
decrease varies annually and has been impacted by global economic conditions, market share changes, exiting or refocusing of market
sectors by our customers and the timing of introduction of new and existing handset devices powered by CEVA technology sold in any
given quarter compared to the prior quarter. Furthermore, in 2020 the worldwide COVID-19 pandemic created demand for digital
connectivity and consumer devices, in parallel to economic slowdowns in different countries and at different times due to shelter-in-
place orders and other government restrictions. Such events may continue into 2021 and distort more traditional seasonality trends.
Moreover, the semiconductor and consumer electronics industries remain volatile, which makes it extremely difficult for our
customers and us to accurately forecast financial results and plan for future business activities. As a result, our past operating results
should not be relied upon as an indication of future performance.
We rely significantly on revenues derived from a limited number of customers who contribute to our royalty and license
revenues.
We derive a significant amount of revenues from a limited number of customers. Sales to Spreadtrum, accounted for 14%, 15%
and 15% of our total revenues for 2020, 2019 and 2018, respectively. Sales to Intel represented 15%, 19% and 19% of our total revenues
for 2020, 2019 and 2018, respectively. With respect to our royalty revenues, four royalty paying customers each represented 10% or
more of our total royalty revenues for 2020, and collectively represented 72% of our total royalty revenues for 2020. Three royalty
paying customers each represented 10% or more of our total royalty revenues for 2019, and collectively represented 73% of our total
royalty revenues for 2019, and three royalty paying customers each represented 10% or more of our total royalty revenues for 2018, and
collectively represented 76% of our total royalty revenues for 2018. We expect that a significant portion of our future revenues will
continue to be generated by a limited number of customers. The loss of any significant royalty paying customer could adversely affect
our near-term future operating results. Furthermore, consolidation among our customers may negatively affect our revenue source,
increase our existing customers’ negotiation leverage and make us further dependent on a limited number of customers. Moreover, the
discontinuation of product lines or market sectors that incorporate our technology by our significant customers or a change in direction
of their business and our inability to adapt our technology to their new business needs could have material negative implications for our
future royalty revenues.
Our business is dependent on licensing revenues, which may vary period to period.
License agreements for our signal processing IP cores and platforms have not historically provided for substantial ongoing
license payments so past licensing revenues may not be indicative of the amount of such revenues in any future period. We believe that
there is a similar risk with RivieraWaves’ operations associated with Bluetooth and Wi-Fi connectivity technologies. Significant portions
of our anticipated future revenues, therefore, will likely depend upon our success in attracting new customers or expanding our
relationships with existing customers. However, revenues recognized from licensing arrangements vary significantly from period to
period, depending on the number and size of deals closed during a quarter, and is difficult to predict. In addition, as we expand our
business into the non-handset baseband markets, our licensing deals may be smaller but greater in volume which may further fluctuate
our licensing revenues quarter to quarter. Our ability to succeed in our licensing efforts will depend on a variety of factors, including
the performance, quality, breadth and depth of our current and future products as well as our sales and marketing skills. In addition,
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some of our licensees may in the future decide to satisfy their needs through in-house design and production. Our failure to obtain future
licensing customers would impede our future revenue growth and could materially harm our business.
Royalty rates could decrease for existing and future license agreements, which could materially adversely affect our operating
results.
Royalty payments to us under existing and future license agreements could be lower than currently anticipated for a variety of
reasons. Average selling prices for semiconductor products generally decrease over time during the lifespan of a product. In addition,
there is increasing downward pricing pressures in the semiconductor industry on end products incorporating our technology, especially
end products for the handsets and consumer electronics markets. As a result, notwithstanding the existence of a license agreement, our
customers may demand that royalty rates for our products be lower than our historic royalty rates. We have in the past and may be
pressured in the future to renegotiate existing license agreements with our customers. In addition, certain of our license agreements
provide that royalty rates may decrease in connection with the sale of larger quantities of products incorporating our technology.
Furthermore, our competitors may lower the royalty rates for their comparable products to win market share which may force us to
lower our royalty rates as well. As a consequence of the above referenced factors, as well as unforeseen factors in the future, the royalty
rates we receive for use of our technology could decrease, thereby decreasing future anticipated revenues and cash flow. Royalty
revenues were approximately 48%, 45% and 48% of our total revenues for 2020, 2019 and 2018, respectively. Therefore, a significant
decrease in our royalty revenues could materially adversely affect our operating results.
Moreover, royalty rates may be negatively affected by macroeconomic trends (including the recent COVID-19 pandemic and
its global impact) or changes in products mix. Furthermore, consolidation among our customers may increase the leverage of our existing
customers to extract concessions from us in royalty rates. Moreover, changes in products mix such as an increase in lower royalty
bearing products shipped in high volume like low-cost feature phones and Bluetooth-based products in lieu of higher royalty bearing
products like LTE phones could lower our royalty revenues.
We generate a significant amount of our total revenues, especially royalty revenues, from the handset baseband market (for
mobile handsets and for other modem connected devices) and our business and operating results may be materially adversely
affected if we do not continue to succeed in these highly competitive markets.
A significant portion of our revenues in general, and in particular our royalty revenues, are derived from baseband for
handsets. Any adverse change in our ability to compete and maintain our competitive position in the handset baseband market,
including through the introduction by competitors of enhanced technologies that attract customers that target those markets, would
harm our business, financial condition and results of operations. Moreover, the handset baseband market is extremely competitive and
is facing intense pricing pressures, and we expect that competition and pricing pressures will only increase. Furthermore, it can be
very volatile with regards to volume shipments of different phones, standards and connected devices due to inventory build out or
consumer demand changes or geographical macroeconomics, pricing changes, product discontinuations due to technical issues and
timing of introduction of new phones and products. Our existing OEM or semiconductor customers also may fail to introduce new
handset devices that attract consumers, lose a significant design opportunity for a new product introduction or encounter significant
delays in developing, manufacturing or shipping new or enhanced products in those markets or find alternative technological solutions
and suppliers. The inability of our customers to compete would result in lower shipments of products powered by our technologies
which in turn would have a material adverse effect on our business, financial condition and results of operations. As an example, Intel,
one of our customers, did not have its products selected for inclusion in Apple’s new 5G smartphone series, and thereafter announced
the sale of its 5G smartphone modem business to Apple. A customer’s loss of a design opportunity may have an adverse effect on our
royalty revenues from such customer, which in turn will also have an adverse effect on our overall results of operations and market
share. Our royalty revenues will be negatively impacted if we fail to offset any loss of royalty revenues from, for example, our
customers’ products being incorporated Apple’s new 5G smartphone series with royalty revenues from other emerging products
incorporating our technologies. Since a significant portion of our revenues is derived from the handset baseband market, adverse
conditions in this market would have a material adverse effect on our business, financial condition and results of operations.
In order to sustain the future growth of our business, we must penetrate new markets and our new products must achieve
widespread market acceptance but such additional revenue opportunities may not be implemented and may not be achieved.
In order to expand our business and increase our revenues, we must penetrate new markets and introduce new products,
including additional non-baseband related products. We have invested significant resources in pursuing potential opportunities for
revenue growth and diversify our revenue streams. Our continued success will depend significantly on our ability to accurately
anticipate changes in industry standards and to continue to appropriately fund development efforts to enhance our existing products or
introduce new products in a timely manner to keep pace with technological developments. However, there are no assurances that we
will develop products relevant for the marketplace or gain significant market share in those competitive markets. Moreover, if any of
our competitors implement new technologies before us, those competitors may be able to provide products that are more effective or
at lower prices, which could adversely impact our sales and impact our market share. Our inability to penetrate new markets and
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increase our market share in those markets or lack of customer acceptance of our new products may harm our business and potential
growth.
Because our IP solutions are components of end products, if semiconductor companies and electronic equipment manufacturers
do not incorporate our solutions into their end products or if the end products of our customers do not achieve market
acceptance, we may not be able to generate adequate sales of our products.
We do not sell our IP solutions directly to end-users; we license our technology primarily to semiconductor companies
and electronic equipment manufacturers, who then incorporate our technology into the products they sell. As a result, we rely on our
customers to incorporate our technology into their end products at the design stage. Once a company incorporates a competitor’s
technology into its end product, it becomes significantly more difficult for us to sell our technology to that company because changing
suppliers involves significant cost, time, effort and risk for the company. As a result, we may incur significant expenditures on the
development of a new technology without any assurance that our existing or potential customers will select our technology for
incorporation into their own product and without this “design win,” it becomes significantly difficult to sell our IP solutions.
Moreover, even after a customer agrees to incorporate our technology into its end products, the design cycle is long and may be
delayed due to factors beyond our control, which may result in the end product incorporating our technology not reaching the market
until long after the initial “design win” with such customer. From initial product design-in to volume production, many factors could
impact the timing and/or amount of sales actually realized from the design-in. These factors include, but are not limited to, changes in
the competitive position of our technology, our customers’ financial stability, and our customers' ability to ship products according to
our customers’ schedule. Moreover, current economic conditions may further prolong a customer’s decision-making process and
design cycle.
Further, because we do not control the business practices of our customers, we do not influence the degree to which they
promote our technology or set the prices at which they sell products incorporating our technology. We cannot assure you that our
customers will devote satisfactory efforts to promote their end products which incorporate our IP solutions.
In addition, our royalties from licenses and therefore the growth of our business, are dependent upon the success of our
customers in introducing products incorporating our technology and the success of those products in the marketplace. The primary
customers for our products are semiconductor design and manufacturing companies, system OEMs and electronic equipment
manufacturers, particularly in the telecommunications field. All of the industries we license into are highly competitive, cyclical and
have been subject to significant economic downturns at various times. These downturns are characterized by production overcapacity
and reduced revenues, which at times may encourage semiconductor companies or electronic product manufacturers to reduce their
expenditure on our technology. If we do not retain our current customers and continue to attract new customers, our business may be
harmed.
We depend on market acceptance of third-party semiconductor intellectual property.
The semiconductor intellectual property (SIP) industry is a relatively small and emerging industry. Our future growth will
depend on the level of market acceptance of our third-party licensable intellectual property model, the variety of intellectual property
offerings available on the market, and a shift in customer preference away from in-house development of proprietary signal processing
IP towards licensing open signal processing IP cores and platforms. Furthermore, the third-party licensable intellectual property model
is highly dependent on the market adoption of new services and products, such as low cost smartphones in emerging markets, LTE-
based smartphones, mobile broadband, small cell base stations and the increased use of advanced audio, voice, computational
photography and embedded vision in mobile, automotive and consumer products, as well as in IoT and connectivity applications in
general in which we participate. Such market adoption is important because the increased cost associated with ownership and
maintenance of the more complex architectures needed for the advanced services and products may motivate companies to license third-
party intellectual property rather than design them in-house.
The trends that would enable our growth are largely beyond our control. Semiconductor customers also may choose to adopt
a multi-chip, off-the-shelf chip solution versus licensing or using highly-integrated chipsets that embed our technologies. If the above
referenced market shifts do not materialize or third-party SIP does not achieve market acceptance, our business, results of operations
and financial condition could be materially harmed.
Because we have significant international operations, we may be subject to political, economic and other conditions relating to
our international operations that could increase our operating expenses and disrupt our revenues and business.
Approximately 79% of our total revenues for 2020, 81% for 2019 and 89% for 2018 were derived from customers located
outside of the United States. We expect that international customers will continue to account for a significant portion of our revenues
for the foreseeable future. As a result, the occurrence of any negative international political, economic or geographic events could result
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in significant revenue shortfalls. These shortfalls could cause our business, financial condition and results of operations to be harmed.
Some of the risks of doing business internationally include:
unexpected changes in regulatory requirements;
fluctuations in the exchange rate for the U.S. dollar;
imposition of tariffs and other barriers and restrictions, including trade tensions such as U.S.-China trade tensions;
potential negative international community’s reaction to the U.S. Tax Cuts and Jobs Act;
burdens of complying with a variety of foreign laws, treaties and technical standards;
uncertainty of laws and enforcement in certain countries relating to the protection of intellectual property;
multiple and possibly overlapping tax structures and potentially adverse tax consequences;
political and economic instability, including terrorist attacks and protectionist polices; and
changes in diplomatic and trade relationships.
Revenues from customers located in the Asia Pacific region account for a substantial portion of our total revenues. We expect
that revenue from international sales generally, and sales to the Asia Pacific region specifically, will continue to be a material part of
our total revenues. Therefore, any financial crisis, trade negotiations or disputes or other major event causing business disruption in
international jurisdictions generally, and in specific countries in the Asia Pacific region in particular, could negatively affect our future
revenues and results of operations. For example, in 2018, the U.S. Department of Commerce’s Bureau of Industry and Security’s initial
ban on exports of U.S. products to Chinese telecommunications OEM ZTE disrupted ZTE’s operations, which caused delays with our
engagements with ZTE and negatively impacted our royalty revenues. Actions of any nature with respect to such customers may reduce
our revenues from them and adversely affect our business and financial results.
New tariffs and other trade measures could adversely affect our consolidated results of operations, financial position and cash
flows.
General trade tensions between the U.S. and China have been escalating since 2018, and are not fully resolved yet. Trade
tensions between the U.S. and China have resulted in significant tariff increases, sanctions against specified entities, and the broadening
of restrictions and license requirements for specified uses of products. The ongoing geopolitical and economic uncertainty between the
U.S. and China, and the unknown impact of current and future U.S. and Chinese trade regulations, may cause disruptions in the
semiconductor industry and its supply chain, decreased demand from customers for the ultimate products using our IP solutions, or other
disruptions which may, directly or indirectly, materially harm our business, financial condition and results of operations. While tariffs
and other retaliatory trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or
results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on
our consolidated results of operations, financial position and cash flows. Furthermore, further changes in U.S. trade policy could trigger
retaliatory actions by affected countries, which could impose restrictions on our ability to do business in or with affected countries or
prohibit, reduce or discourage purchases of our products by foreign customers and higher prices for our products in foreign markets. For
example, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel companies
that do business in China to partner with local companies to conduct business and provide incentives to government-backed local
customers to buy from local suppliers. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products
and cause our sales and revenues to drop, which could materially and adversely impact our business and results of operations.
We depend on a limited number of key personnel who would be difficult to replace.
Our success depends to a significant extent upon certain of our key employees and senior management, the loss of which could
materially harm our business. Competition for skilled employees in our field is intense. We cannot assure you that in the future we will
be successful in attracting and retaining the required personnel.
The sales cycle for our IP solutions is lengthy, which makes forecasting of our customer orders and revenues difficult.
The sales cycle for our IP solutions is lengthy, often lasting three to nine months. Our customers generally conduct significant
technical evaluations, including customer trials, of our technology as well as competing technologies prior to making a purchasing
decision. In addition, purchasing decisions also may be delayed because of a customer’s internal budget approval process. Furthermore,
given the current market conditions, we have less ability to predict the timing of our customers’ purchasing cycle and potential
unexpected delays in such a cycle. Because of the lengthy sales cycle and potential delays, our dependence on a limited number of
customers to generate a significant amount of revenues for a particular period and the size of customer orders, if orders forecasted for a
specific customer for a particular period do not occur in that period, our revenues and operating results for that particular quarter could
suffer. Moreover, a portion of our expenses related to an anticipated order is fixed and difficult to reduce or change, which may further
impact our operating results for a particular period.
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Because our IP solutions are complex, the detection of errors in our products may be delayed, and if we deliver products with
defects, our credibility will be harmed, the sales and market acceptance of our products may decrease and product liability
claims may be made against us.
Our IP solutions are complex and may contain errors, defects and bugs when introduced. If we deliver products with errors,
defects or bugs, our credibility and the market acceptance and sales of our products could be significantly harmed. Furthermore, the
nature of our products may also delay the detection of any such error or defect. If our products contain errors, defects and bugs, then
we may be required to expend significant capital and resources to alleviate these problems. This could result in the diversion of technical
and other resources from our other development efforts. Any actual or perceived problems or delays may also adversely affect our
ability to attract or retain customers. Furthermore, the existence of any defects, errors or failure in our products could lead to product
liability claims or lawsuits against us or against our customers. A successful product liability claim could result in substantial cost and
divert management’s attention and resources, which would have a negative impact on our financial condition and results of operations.
Our success will depend on our ability to successfully manage our geographically dispersed operations.
Most of our research and development staff is located in Israel. We also have research and development teams in France,
Ireland, the United Kingdom and United States (following our acquisition of the Hillcrest Labs business from InterDigital in July 2019).
Accordingly, our ability to compete successfully will depend in part on the ability of a limited number of key executives located in
geographically dispersed offices to manage our research and development staff and integrate them into our operations to effectively
address the needs of our customers and respond to changes in our markets. If we are unable to effectively manage and integrate our
remote operations, our business may be materially harmed.
Our operations in Israel may be adversely affected by instability in the Middle East region.
One of our principal research and development facilities is located in Israel, and most of our executive officers and some of
our directors are residents of Israel. Although substantially all of our sales currently are being made to customers outside Israel, we are
nonetheless directly influenced by the political, economic and military conditions affecting Israel. Any major hostilities involving Israel
could significantly harm our business, operating results and financial condition.
In addition, certain of our employees are currently obligated to perform annual reserve duty in the Israel Defense Forces and
are subject to being called to active military duty at any time. Although we have operated effectively under these requirements since
our inception, we cannot predict the effect of these obligations on the company in the future. Our operations could be disrupted by the
absence, for a significant period, of one or more of our key employees due to military service.
Terrorist attacks, acts of war or military actions and/or other civil unrest may adversely affect the territories in which we
operate, and our business, financial condition and operating results.
Terrorist attacks and attempted terrorist attacks, military responses to terrorist attacks, other military actions, or governmental
action in response to or in anticipation of a terrorist attack, or civil unrest, may adversely affect prevailing economic conditions, resulting
in work stoppages, reduced consumer spending or reduced demand for end products that incorporate our technologies. These
developments subject our worldwide operations to increased risks and, depending on their magnitude, could reduce net sales and
therefore could have a material adverse effect on our business, financial condition and operating results.
Our research and development expenses may increase if the grants we currently receive from the Israeli government are reduced
or withheld.
We currently receive research grants mainly from programs of the IIA. We recorded an aggregate of $3,042,000, $5,843,000
and $3,510,000 in 2020, 2019 and 2018, respectively. The amounts in 2020 are lower compared to 2019 as some CEVA-requested
programs were not approved by the IIA and as a result of a general change of fund allocations by the IIA. While we will endeavor to
win part of these amounts in the coming years, we can provide no assurance that such efforts will be successful. To be eligible for these
grants, we must meet certain development conditions and comply with periodic reporting obligations. Although we have met such
conditions in the past, should we fail to meet such conditions in the future our research grants may be repayable, reduced or withheld.
The repayment or reduction of such research grants may increase our research and development expenses which in turn may reduce our
operating income. Also, the timing of such payments from the IIA may vary from year to year and quarter to quarter, and we have no
control on the timing of such payment.
The nature of our business requires the application of complex revenue recognition rules. Significant changes in U.S. generally
accepted accounting principles, or GAAP, including the adoption of the new revenue recognition rules, could materially affect
our financial position and results of operations.
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We prepare our financial statements in accordance with GAAP, which is subject to interpretation or changes by the Financial
Accounting Standards Board, or FASB, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting
principles. New accounting pronouncements and changes in accounting principles have occurred in the past and are expected to occur
in the future, which may have a significant effect on our financial results. For example, pursuant to the new revenue recognition rules,
effective as of January 1, 2018, an entity recognizes sales and usage-based royalties as revenue only when the later of the following
events occurs: (1) the subsequent sale or usage occurs or (2) the performance obligation to which some or all of the sales-based or usage-
based royalty allocated has been satisfied (or partially satisfied). Recognizing royalty revenue on a lag time basis is not permitted. As
a result, the royalties we generate from customers is based on royalty of units shipped during the quarter as estimated by our customers,
not a quarter in arrears that we previously report. Adoption of this standard and any difficulties in implementation of changes in
accounting principles, including uncertainty associated with royalty revenues for the quarter based on estimates provided by our
customer, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm
investors’ confidence in us.
The Israeli tax benefits that we currently receive and the government programs in which we participate require us to meet
certain conditions and may be terminated or reduced in the future, which could increase our tax expenses.
We enjoy certain tax benefits in Israel, particularly as a result of the “Approved Enterprise” and the “Benefited Enterprise”
status of our facilities and programs through 2019, and the “Technological Preferred Enterprise” status of our facilities and programs
since 2020. To maintain our eligibility for these tax benefits, we must continue to meet certain conditions, relating principally to
adherence to the investment program filed with the Investment Center of the Israeli Ministry of Industry and Trade and to periodic
reporting obligations. Should we fail to meet such conditions, these benefits would be cancelled and we would be subject to corporate
tax in Israel at the standard corporate rate (23% in 2020) and could be required to refund tax benefits already received. Additionally, if
we increase our activities outside of Israel, for example, by acquisitions, our increased activities may not be eligible for inclusion in
Israeli tax benefit programs. The termination or reduction of certain programs and tax benefits or a requirement to refund tax benefits
already received may seriously harm our business, operating results and financial condition.
We may have exposure to additional tax liabilities as a result of our foreign operations.
We are subject to income taxes in the United States and various foreign jurisdictions. In addition to our significant
operations in Israel, we have operations in Ireland, France, the United Kingdom, China and Japan. Significant judgment is required in
determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are
many intercompany transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by
tax authorities. Our intercompany transfer pricing may be reviewed by the U.S. Internal Revenue Service and by foreign tax
jurisdictions. Although we believe that our tax estimates are reasonable, due to the complexity of our corporate structure, the multiple
intercompany transactions and the various tax regimes, we cannot assure you that a tax audit or tax dispute to which we may be
subject will result in a favorable outcome for us. If taxing authorities do not accept our tax positions and impose higher tax rates on
our foreign operations, our overall tax expenses could increase.
Our failure to maintain certain research tax benefits applicable to French technology companies may adversely affect the results
of operations of our RivieraWaves operations.
Pursuant to our acquisition of the RivieraWaves operations, we will benefit from certain research tax credits applicable to
French technology companies, including, for example, the Crédit Impôt Recherche (“CIR”). The CIR is a French tax credit aimed at
stimulating research activities. The CIR can be offset against French corporate income tax due and the portion in excess (if any) may
be refunded every three years. The French Parliament can decide to eliminate, or reduce the scope or the rate of, the CIR benefit, at any
time or challenge our eligibility or calculations for such tax credits, all of which may have an adverse impact on our results of operations
and future cash flows.
We are exposed to fluctuations in currency exchange rates.
A significant portion of our business is conducted outside the United States. Although most of our revenues are transacted in
U.S. dollars, we may be exposed to currency exchange fluctuations in the future as business practices evolve and we are forced to
transact business in local currencies. Moreover, the majority of our expenses are denominated in foreign currencies, mainly New Israeli
Shekel (NIS) and the EURO, which subjects us to the risks of foreign currency fluctuations. Based on trends to date, we expect that in
2021 we will have additional exchange rate expenses as compared to 2020 in the event of the ongoing devaluation of the U.S. dollar
compared to the Shekel and Euro. Our primary expenses paid in currencies other than the U.S. dollar are employee salaries. Increases
in the volatility of the exchange rates of currencies other than the U.S. dollar versus the U.S. dollar could have an adverse effect on the
expenses and liabilities that we incur in currencies other than the U.S. dollar when remeasured into U.S. dollars for financial reporting
purposes. We have instituted a foreign cash flow hedging program to minimize the effects of currency fluctuations. However, hedging
transactions may not successfully mitigate losses caused by currency fluctuations, and our hedging positions may be partial or may not
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exist at all in the future. We also review our monthly expected non-U.S. dollar denominated expenditure and look to hold equivalent
non-U.S. dollar cash balances to mitigate currency fluctuations. However, in some cases, we expect to continue to experience the effect
of exchange rate currency fluctuations on an annual and quarterly basis. For example, our EURO cash balances increase significantly
on a quarterly basis beyond our EURO liabilities from the CIR, which is generally refunded every three years.
We are exposed to the credit risk of our customers, which could result in material losses.
As we diversify and expand our addressable market, we will enter into licensing arrangements with first time customers with
whom we don’t have full visible of their creditworthiness. Furthermore, we have increased business activities in the Asia Pacific
region. As a result, our future credit risk exposure may increase. Although we monitor and attempt to mitigate credit risks, there can
be no assurance that our efforts will be effective. Although any losses to date relating to credit exposure of our customers have not
been material, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and
financial condition.
Our product development efforts are time-consuming and expensive and may not generate an acceptable return, if any.
Our product development efforts require us to incur substantial research and development expense. Our research and
development expenses were approximately $62.0 million, $52.8 million and $47.8 million for 2020, 2019 and 2018, respectively. We
may not be able to achieve an acceptable return, if any, on our research and development efforts.
The development of our products is highly complex. We occasionally have experienced delays in completing the
development and introduction of new products and product enhancements, and we could experience delays in the future.
Unanticipated problems in developing products could also divert substantial engineering resources, which may impair our ability to
develop new products and enhancements and could substantially increase our costs. Furthermore, we may expend significant amounts
on research and development programs that may not ultimately result in commercially successful products. Our research and
development expense levels have increased steadily in the past few years. As a result of these and other factors, we may be unable to
develop and introduce new products successfully and in a cost-effective and timely manner, and any new products we develop and
offer may never achieve market acceptance. Any failure to successfully develop future products would have a material adverse effect
on our business, financial condition and results of operations.
If we are unable to meet the changing needs of our end-users or address evolving market demands, our business may be harmed.
The markets for signal processing IPs are characterized by rapidly changing technology, emerging markets and new and
developing end-user needs, and requiring significant expenditure for research and development. We cannot assure you that we will be
able to introduce systems and solutions that reflect prevailing industry standards, on a timely basis, meet the specific technical
requirements of our end-users or avoid significant losses due to rapid decreases in market prices of our products, and our failure to do
so may seriously harm our business.
We may seek to expand our business in ways that could result in diversion of resources and extra expenses.
We may in the future pursue acquisitions of businesses, products and technologies, establish joint venture arrangements, make
minority equity investments or enhance our existing CEVAnet partner eco-system to expand our business. We are unable to predict
whether or when any prospective acquisition, equity investment or joint venture will be completed. The process of negotiating potential
acquisitions, joint ventures or equity investments, as well as the integration of acquired or jointly developed businesses, technologies or
products may be prolonged due to unforeseen difficulties and may require a disproportionate amount of our resources and management’s
attention. We cannot assure you that we will be able to successfully identify suitable acquisition or investment candidates, complete
acquisitions or investments, or integrate acquired businesses or joint ventures with our operations. If we were to make any acquisition
or investment or enter into a joint venture, we may not receive the intended benefits of the acquisition, investment or joint venture or
such an acquisition, investment or joint venture may not achieve comparable levels of revenues, profitability or productivity as our
existing business or otherwise perform as expected. The expansion of our CEVAnet partner eco-system also may not achieve the
anticipated benefits. The occurrence of any of these events could harm our business, financial condition or results of operations. Future
acquisitions, investments or joint ventures may require substantial capital resources, which may require us to seek additional debt or
equity financing.
Future acquisitions, joint ventures or minority equity investments by us could result in the following, any of which could
seriously harm our results of operations or the price of our stock:
issuance of equity securities that would dilute our current stockholders’ percentages of ownership;
large one-time write-offs or equity investment impairment write-offs;
incurrence of debt and contingent liabilities;
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difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of
the acquired companies;
inability to realize cost efficiencies or synergies, thereby incurring higher operating expenditures as a result of the
acquisition;
diversion of management’s attention from other business concerns;
contractual disputes;
risks of entering geographic and business markets in which we have no or only limited prior experience; and
potential loss of key employees of acquired organizations.
We may not be able to adequately protect our intellectual property.
Our success and ability to compete depend in large part upon the protection of our proprietary technologies. We rely on a
combination of patent, copyright, trademark, trade secret, mask work and other intellectual property rights, confidentiality procedures
and licensing arrangements to establish and protect our proprietary rights. These agreements and measures may not be sufficient to
protect our technology from third-party infringement or protect us from the claims of others. As a result, we face risks associated with
our patent position, including the potential need to engage in significant legal proceedings to enforce our patents, the possibility that the
validity or enforceability of our patents may be denied, the possibility that third parties will be able to compete against us without
infringing our patents and the possibility that our products may infringe patent rights of third parties.
Our trade names or trademarks may be registered or utilized by third parties in countries other than those in which we have
registered them, impairing our ability to enter and compete in those markets. If we were forced to change any of our brand names, we
could lose a significant amount of our brand identity.
Our business will suffer if we are sued for infringement of the intellectual property rights of third parties or if we cannot obtain
licenses to these rights on commercially acceptable terms.
We are subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others.
There are a large number of patents held by others, including our competitors, pertaining to the broad areas in which we are active. We
have not, and cannot reasonably, investigate all such patents. From time to time, we have become aware of patents in our technology
areas and have sought legal counsel regarding the validity of such patents and their impact on how we operate our business, and we will
continue to seek such counsel when appropriate in the future. In addition, patent infringement claims are increasingly being asserted by
patent holding companies (so-called patent “trolls”), which do not use technology and whose sole business is to enforce patents against
companies, such as us, for monetary gain. Because such patent holding companies do not provide services or use technology, the
assertion of our own patents by way of counter-claim may be ineffective. Infringement claims may require us to enter into license
arrangements or result in protracted and costly litigation, regardless of the merits of these claims. Any necessary licenses may not be
available or, if available, may not be obtainable on commercially reasonable terms. If we cannot obtain necessary licenses on
commercially reasonable terms, we may be forced to stop licensing our technology, and our business would be seriously harmed.
The future growth of our business depends in part on our ability to license to system OEMs and small-to-medium-sized
semiconductor companies directly and to expand our sales geographically.
Historically, a substantial portion of our licensing revenues has been derived in any given period from a relatively small number
of licensees. Because of the substantial license fees we charge, our customers tend to be large semiconductor companies or vertically
integrated system OEMs. Part of our current growth strategy is to broaden the adoption of our products by small and mid-size companies
by offering different versions of our products targeted at these companies. If we are unable to develop and market effectively our
intellectual property through these models, our revenues will continue to be dependent on a smaller number of licensees and a less
geographically dispersed pattern of licensees, which could materially harm our business and results of operations.
Our operating results are affected by the highly cyclical nature of and general economic conditions in the semiconductor
industry.
We operate within the semiconductor industry, which experiences significant fluctuations in sales and profitability. Downturns
in the semiconductor industry are characterized by diminished product demand, excess customer inventories, accelerated erosion of
prices and excess production capacity. Various market data suggests that the semiconductor industry may be facing such a negative
cycle presently, especially in the global handset market. The semiconductor industry has faced significant global supply chain issues as
a result of the impact of the COVID-19 pandemic and the related imposition of government restrictions on staffing and facility
operations, supply chain shortages, and other disruptions. Numerous factors, such as the ongoing pandemic or further trade tensions
between the U.S. and China, may prolong or deepen these challenges faced by the industry. Volatility or declines in the semiconductor
industry could cause substantial fluctuations or declines in our revenues and results of operations.
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If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which
would negatively impact our operating results.
Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. Under accounting
principles generally accepted in the United States of America, we assess potential impairment of our goodwill and intangible assets at
least annually, as well as on an interim basis to the extent that factors or indicators become apparent that could reduce the fair value of
any of our businesses below book value. Impairment may result from significant changes in the manner of use of the acquired asset,
negative industry or economic trends and significant underperformance relative to historic or projected operating results. If we
determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which could negatively
impact our operating results.
Cybersecurity threats or other security breaches could compromise sensitive information belonging to us or our customers and
could harm our business and our reputation.
We store sensitive data, including intellectual property, proprietary business information and our customer and employee
information. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or
breached due to employee error, malfeasance or other disruptions that could result in unauthorized disclosure or loss of sensitive data.
Because the techniques used to obtain unauthorized access to networks, or to sabotage systems, change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative
measures. Furthermore, in the operation of our business we also use third-party vendors that store certain sensitive data. Any security
breach of our own or a third-party vendor’s systems could cause us to be non-compliant with applicable laws or regulations, subject us
to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services,
any of which could adversely affect our business.
Our corporate tax rate may increase, which could adversely impact our cash flow, financial condition and results of operations.
We have significant operations in Israel, as well operations in the Republic of Ireland and France. A substantial portion of our
taxable income historically has been generated in Israel, and starting in 2020, also in France. Currently, our Israeli and Irish subsidiaries
are taxed at rates lower than the U.S. tax rates. Our French entity tax rate is 28% and higher than current U.S. tax rates. If our Israeli and
Irish subsidiaries were no longer to qualify for these lower tax rates or if the applicable tax laws were rescinded or changed, our operating
results could be materially adversely affected. Moreover, if U.S. or other authorities were to change applicable tax laws or successfully
challenge the manner in which our subsidiaries’ profits are currently recognized, our overall tax expenses could increase, and our
business, cash flow, financial condition and results of operations could be materially adversely affected. Also our taxes on the Irish
interest income may be double taxed both in Ireland and in the U.S. due to U.S. tax regulations and Irish tax restrictions on net operating
losses to offset interest income. In addition, our Israeli interest income also may be taxed both in Israel and the U.S due to different
Controlled Foreign Corporation rules.
The anti-takeover provisions in our certificate of incorporation and bylaws could prevent or discourage a third party from
acquiring us.
Our certificate of incorporation and bylaws contain provisions that may prevent or discourage a third party from acquiring us,
even if the acquisition would be beneficial to our stockholders. Our board of directors also has the authority to fix the rights and
preferences of shares of our preferred stock and to issue such shares without a stockholder vote. Our bylaws also place limitations on
the authority to call a special meeting of stockholders. We have advance notice procedures for stockholders desiring to nominate
candidates for election as directors or to bring matters before an annual meeting of stockholders. In addition, these factors may also
adversely affect the market price of our common stock, and the voting and other rights of the holders of our common stock.
Our stock price may be volatile so you may not be able to resell your shares of our common stock at or above the price you paid
for them.
Announcements of developments related to our business, announcements by competitors, quarterly fluctuations in our financial
results, changes in the general conditions of the highly dynamic industry in which we compete or the national economies in which we
do business, and other factors could cause the price of our common stock to fluctuate, perhaps substantially. For example, if we fail to
achieve our near term financial guidance or longer term 2022 strategic goals announced at our analysts day in January 2019, or fail to
show overall business growth and expansion, our stock price may significantly decline. In addition, in recent years, the stock market has
experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. These
factors and fluctuations could have a material adverse effect on the market price of our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters are located in Rockville, Maryland and we have principal offices in Herzliya, Israel, Sophia
Antipolis, France and Dublin, Ireland.
We lease buildings for our executive offices, and engineering, sales, marketing, administrative and support
operations and design centers. The following table summarizes information with respect to the principal facilities leased
by us as of December 31, 2020:
Location
Term Expiration
Area
(Sq. Feet)
Rockville, MD, U.S.
7 years
2028
9,913
Principal Activities
Headquarters; research and development;
administration
Herzliya, Israel (1)
5 years
2025
53,971
Research and development; administration; sales
and marketing
Mountain View, CA, U.S.
8 years
2023
3,769
Sales and marketing; administration
Dublin, Ireland
10 years
2026
1,755
Research and development; administration
Cork, Ireland
5 years
2021
2,780
Research and development
Belfast, UK (2)
15 years
2034
2,600
Research and development
Bristol, UK (3)
10 years
2029
2,554
Research and development
Sophia Antipolis, France
12 years
2024
7,535
Research and development; administration; sales
and marketing
Shanghai, China
3 years
2021
3,438
Sales and marketing
Tokyo, Japan
3 years
2022
1,713
Sales and marketing
(1) Break clause in the lease exercisable in 2023.
(2) Break clause in the lease exercisable upon payment of one year rent.
(3) Break clause in the lease exercisable in 2024.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course
of business. We are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, would
have a material adverse effect on our results of operations or financial position
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Below are the names, ages and principal recent business experience of our current executive officers. All such
persons have been appointed by our board of directors to serve until their successors are elected and qualified or until their
earlier resignation or removal.
Gideon Wertheizer, age 64, has served as our Chief Executive Officer since May 2005. He joined our board of
directors in January 2010. Mr. Wertheizer has 37 years of experience in the semiconductor and Silicon Intellectual Property
(SIP) industries. He previously served as the Executive Vice President and General Manager of the DSP business unit at
CEVA. Prior to joining CEVA in November 2002, Mr. Wertheizer held various executive positions at DSP Group, Inc.,
including such roles as Executive VP - Strategic Business Development, Vice President for Marketing and Vice President
of VLSI design. Mr. Wertheizer holds a BsC for electrical engineering from Ben Gurion University in Israel and executive
MBA from Bradford University in the United Kingdom.
Yaniv Arieli, age 52, has served as our Chief Financial Officer since May 2005. Prior to his current position, Mr.
Arieli served as President of U.S. Operations and Director of Investor Relations of DSP Group beginning in August 2002
and Vice President of Finance, Chief Financial Officer and Secretary of DSP Group’s DSP Cores Licensing Division prior
to that time. Before joining DSP Group in 1997, Mr. Arieli served as an account manager and certified public accountant
at Kesselman & Kesselman, a member of PricewaterhouseCoopers, a leading accounting firm. Mr. Arieli is a CPA and
holds a B.A. in Accounting and Economics from Haifa University in Israel and an M.B.A. from Newport University and is
also a member of the National Investor Relation Institute.
Issachar Ohana, age 55, has served as our Vice President, Worldwide Sales, since November 2002 and our
Executive Vice President, Worldwide Sales, since July 2006. Prior to joining CEVA in November 2002, Mr. Ohana was
with DSP Group beginning in August 1994 as a VLSI design engineer. He was appointed Project Manager of DSP Group’s
research and development in July 1995, Director of Core Licensing in August 1998, and Vice President—Sales of the Core
Licensing Division in May 2000. Mr. Ohana holds a B.Sc. in Electrical and Computer Engineering from Ben Gurion
University in Israel and an MBA from Bradford University in the United Kingdom.
Michael Boukaya, age 46, has served as our Chief Operating Officer since April 2019. Prior to this position, Mr.
Boukaya served as our Vice President and General Manager of the wireless business unit since 2014. Previously, Mr.
Boukaya served as VP and Chief Architect with overall responsibility for the research and development of next generation
DSP cores, wireless platform architectures and multimedia processors. Before joining CEVA, he was with DSP Group, Inc.,
holding different engineering and research and development management positions. Mr. Boukaya holds a B.Sc. in Electronic
Engineering from the Technion Technology Institute, graduated from Executive Program of Stanford Graduate School of
Business, and holds several patents on DSP technology.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading on The NASDAQ Global Market on November 1, 2002. Our common stock
currently trades under the ticker symbol “CEVA” on NASDAQ. As of February 20, 2021, there were approximately 560
holders of record, which we believe represents approximately 31,269 beneficial holders.
Equity Compensation Plan Information
Information as of December 31, 2020 regarding options, SARs, RSUs and PSUs granted under our stock plans and
remaining available for issuance under those plans will be contained in the definitive 2021 Proxy Statement for the 2021
annual meeting of stockholders to be held on May 6, 2021 and incorporated herein by reference.
Issuer Purchases of Equity Securities
There were no repurchases of our common stock during the three months ended December 31, 2020.
2021 Annual Meeting of Stockholders
We anticipate that the 2021 annual meeting of our stockholders will be held on May 6, 2021.
Dividends
We have historically not paid dividends and have no foreseeable plans to pay dividends.
Stock Performance Graph
Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this proxy
statement or future filings made by the Company under those statutes, the below Stock Performance Graph shall not be
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27
deemed filed with the United States Securities and Exchange Commission and shall not be deemed incorporated by reference
into any of those prior filings or into any future filings made by the Company under those statutes.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2020
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2015
2016
2017
2018
2019
2020
CEVA, Inc.
NASDAQ Composite Index
S&P 500 Index - Total Return
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
CEVA, Inc.
100.00
143.62
NASDAQ Composite
100.00
108.87
S&P 500
100.00
111.96
197.56
141.13
136.40
94.57
137.12
130.42
115.42
194.80
187.44
271.64
171.49
203.04
The stock performance graph above compares the percentage change in cumulative stockholder return on the
common stock of our company for the period from December 31, 2015, through December 31, 2020, with the cumulative
total return on The NASDAQ Global Market (U.S.) Composite Index and the S&P 500 Index.
This graph assumes the investment of $100 in our common stock (at the closing price of our common stock on
December 31, 2015), the NASDAQ Global Market (U.S.) Composite Index and the S&P 500 Index on December 31, 2015,
and assumes dividends, if any, are reinvested.
Comparisons in the graph above are based upon historical data and are not indicative of, nor intended to forecast,
future performance of our common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with, and are qualified by reference to, our
consolidated financial statements and the related notes, as well as our “Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the fiscal year ended December 31, 2020,” both appearing elsewhere in this annual
report.
2016
2017
2018
(in thousands)
2019
2020
Consolidated Statements of Income Data:
Revenues:
Licensing and related revenue
Royalties
Total revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development, net
Sales and marketing
General and administrative
Amortization of intangible assets
Total operating expenses
Operating income (loss)
Financial income, net
Revaluation of investment in non-marketable equity
securities
Income before taxes on income
Taxes on income
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Consolidated Balance Sheet Data:
Working capital
Total assets
Total long-term liabilities
Total stockholders’ equity
$ 31,874 $ 42,899 $ 40,446 $ 47,890 $ 52,513
47,813
100,326
10,749
89,577
40,779
72,653
6,086
66,567
37,431
77,877
7,951
69,926
44,608
87,507
6,953
80,554
39,262
87,152
10,106
77,046
30,838
11,540
8,567
1,236
52,181
14,386
2,039
—
16,425
3,325
40,385
12,572
10,488
1,236
64,681
15,873
3,026
—
18,899
1,871
$ 13,100 $ 17,028 $
0.78 $
$
0.75 $
$
0.63 $
0.61 $
47,755
12,161
10,354
901
71,171
(1,245)
3,418
(870)
1,303
729
574 $
0.03 $
0.03 $
52,843
12,363
11,841
1,923
78,970
(1,924)
3,291
—
1,367
1,339
28 $
0.00 $
0.00 $
62,010
11,907
14,116
2,307
90,340
(763)
3,284
—
2,521
4,900
(2,379)
(0.11)
(0.11)
2016
2017
2018
(in thousands)
2019
2020
$ 122,117 $ 136,281 $ 155,536 $ 152,174 $ 139,379
306,952
17,883
$ 211,551 $ 244,670 $ 245,879 $ 251,157 $ 260,889
242,495
8,349
277,263
9,632
297,021
19,486
276,812
9,347
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
March
31,
June
30,
September
30,
2019
Three months ended
December
31,
March
31,
June
30,
September
30,
December
31,
2020
Revenues:
Licensing and related revenue
Royalties
$ 11,011 $ 10,804 $ 11,269 $ 14,806 $ 14,495 $ 13,530 $ 12,420 $ 12,068
5,958 7,596 12,202 13,506 9,120 10,076 12,540 16,077
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29
March
31,
June
30,
September
30,
2019
Three months ended
December
31,
March
31,
June
30,
September
30,
December
31,
2020
Total revenues
Cost of revenues
Gross profit
Operating expenses:
16,969 18,400 23,471 28,312 23,615 23,606 24,960 28,145
2,023 2,493 2,767 2,823 2,751 3,005 2,503 2,490
14,946 15,907 20,704 25,489 20,864 20,601 22,457 25,655
Total operating expenses
Research and development, net
Sales and marketing
General and administrative
Amortization of intangible assets
12,330 12,390 13,873 14,250 15,113 14,979 15,603 16,315
3,021 2,956 2,832 3,554 3,168 2,893 2,711 3,135
2,317 2,534 3,509 3,481 3,664 3,663 3,566 3,223
575
17,878 18,090 20,971 22,031 22,527 22,110 22,455 23,248
2 2,407
(2,932) (2,183)
Operating income (loss)
595
896
Financial income, net
838 1,020
(671) 1,022 3,002
Income (loss) before taxes on income (2,132) (1,287)
419 1,761 2,367
Taxes on income (tax benefit)
225
635
Net income (loss)
(267) 3,458 (1,663) (1,509)
992
603
336 4,450
(439) 1,388
775 $ 3,062 $ (1,185) $ (1,090) $
831
(832)
353
$ (2,297) $ (1,512) $
(739) $
757
800
165
210
582
575
210
575
746
Basic net income (loss) per share
Diluted net income (loss) per share
Weighted average shares used to
compute net income (loss) per
share (in thousands):
Basic
Diluted
$ (0.10) $ (0.07) $ 0.04 $ 0.14 $ (0.05) $ (0.05) $ (0.03) $ 0.03
$ (0.10) $ (0.07) $ 0.03 $ 0.14 $ (0.05) $ (0.05) $ (0.03) $ 0.03
21,917 21,936 21,953 21,920 21,994 22,017 22,163 22,249
21,917 21,936 22,404 22,373 21,994 22,017 22,163 22,911
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the consolidated financial statements and related notes
appearing elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those included in such forward-looking statements. Factors that
could cause actual results to differ materially include those set forth under “Risk Factors,” as well as those otherwise
discussed in this section and elsewhere in this annual report. See “Forward-Looking Statements and Industry Data.”
BUSINESS OVERVIEW
The following discussion and analysis is intended to provide an investor with a narrative of our financial results and
an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our
consolidated financial statements and notes thereto for the year ended December 31, 2020, both appearing elsewhere in this
annual report.
Headquartered in Rockville, Maryland, CEVA is the leading licensor of wireless connectivity and smart sensing
technologies. We offer Digital Signal Processors, AI processors, wireless platforms and complementary software for sensor
fusion, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling
technologies for a smarter, more connected world. These IP products are licensed to customers who embed them into their
system-on-chip (SoC) and microcontroller designs to create power-efficient, intelligent and connected devices. Our
customers include many of the world’s leading semiconductor and original equipment manufacturer (OEM) companies
targeting a wide variety of IoT end markets, including mobile, PC, consumer, automotive, robotics, industrial and medical.
Our ultra-low-power IPs are enabled by our own DSPs and controllers and are deployed in devices for smart sensing
and connectivity workloads. Our smart sensing portfolio includes advanced technologies for cameras, microphones, sensor
hubs and inertial measurement units (IMU). Our camera platforms incorporate DSP cores, coprocessors and software
technologies for AI, computer vision and imaging. Our microphone technologies incorporate DSP cores and software
technologies for noise cancellation, echo cancellation and voice recognition. Our sensor hub DSPs serve as a hub for AI
and DSP processing workloads associated with a wide range of sensors including camera, Radar, LiDAR, Time-of-Flight,
microphones and inertial measurement units (IMUs). Our IMU technologies include processor agnostic software supporting
sensor processing of accelerometers, gyroscopes, magnetometers, optical flow, as well as environmental sensors in devices.
Our connectivity portfolio includes LTE and 5G mobile broadband platforms for handsets and base station RAN, NB-IoT
for low bit rate cellular and Bluetooth and Wi-Fi technologies for wireless IoT.
CEVA is a sustainable and environmentally conscious company, adhering to our Code of Business Conduct and
Ethics. As such, we emphasize and focus on environmental preservation, recycling, the welfare of our employees and
privacy – which we promote on a corporate level. At CEVA, we are committed to social responsibility, values of
preservation and consciousness towards these purposes.
We believe that our licensing business is robust with a diverse customer base and a myriad of target markets. Our
state-of-the-art technology has shipped in more than 12 billion chips to date for a wide range of end markets. Every second,
more than forty devices sold worldwide are powered by CEVA.
We believe the adoption of our wireless connectivity and smart sensing products beyond our incumbency in the
handset baseband market continues to progress. Reflecting this trend, during 2020, we concluded fifty-five licensing deals,
the majority of which were for these applications. We continue to experience strong demand for our products and expand
our market reach into new areas. In the fourth quarter, we signed twenty-one licensing agreements, including a strategic
agreement for our connectivity technologies with a tier 1 smartphone OEM. We also concluded agreements broadly across
our connectivity and sensing products, illustrating the industry demand for our diverse IP portfolio.
We believe the following key elements represent significant growth drivers for the company:
CEVA is an incumbent player in the largest space of the semiconductor industry – mobile handsets. Our
customers use our technologies for baseband and voice processing. Our key customers currently have a strong
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foothold in low-tier LTE smartphones and feature phones markets which continue to experience strong
momentum.
The royalty we derive from premium-tier smartphones is higher on average than that of mid and low-tier
smartphones due to more DSP content that bears a higher royalty average selling price (“ASP”). Looking
ahead, we believe our PentaG platform for 5G handsets and 5G IoT endpoints is the most comprehensive
baseband processor IP in the industry today and provides newcomers and incumbents with a low entry barrier
solution to address the need for power 5G processing for smartphones, fixed wireless and a range of
connected devices such as robots, cars, smart cities and other devices for industrial applications.
Our specialization and technological edge in signal processing platforms for 5G base station RAN, including
Remote Radio Units (RRU), Active Antenna Units (AAU), Base Band Units (BBU) and Distributed Units
(DU) put us in a strong position to capitalize on the growing 5G RAN across its new form factors such as V-
RAN, C-RAN and O-RAN, as well as small cells and private networks.
Our broad Bluetooth, Wi-Fi and NB-IoT IPs allow us to expand further into the high volume IoT applications
and substantially increase our value-add. Our addressable market size for Bluetooth, Wi-Fi and NB-IoT is
expected to be more than 9 billion devices annually by 2022 based on ABI Research and Ericsson Mobility
Reports.
The growing market potential for voice assisted devices, as voice is becoming a primary user interface for IoT
applications, including handsets, smart speaker, True Wireless Stereo (TWS) earbuds, AR &VR headsets,
smartTVs, smart home and consumer devices, offers an additional growth segment for us. To better address
this market, our WhisPro speech recognition technology and ClearVox voice input software are offered in
conjunction with our audio/voice DSPs. These highly-integrated platforms, plus our proven track record in
audio/voice processing and connectivity with more than 7 billion audio chips shipped to date, put us in a
strong position to power audio and voice roadmaps across this new range of addressable end markets.
Our second generation SensPro2 sensor hub DSP family provides highly compelling offerings for any sensor-
enabled device and application such as smartphones, automotive safety (ADAS), autonomous driving (AD),
drones, robotics, security and surveillance, augmented reality (AR) and virtual reality (VR), Natural Language
Processing (NLP) and voice recognition. Per research from Yole Développement, camera-enabled devices
incorporating computer vision and AI are expected to exceed 1 billion units, and devices incorporating voice
AI are expected to reach 620 million units by 2022. This new DSP architecture enables us to address the
transformation in devices enabled by these applications, and expand our footprint and content in smartphones,
drones, consumer cameras, surveillance, automotive ADAS, voice-enabled devices and industrial IoT
applications. We signed our first customers in 2020 for this new processor family, which are targeting
automotive applications.
Neural networks are increasingly being deployed in a wide range of camera-based devices in order to make
these devices “smarter.” To address this significant and lucrative opportunity, our NeuPro-S™ a second-
generation family of AI processors for deep learning at the edge, brings the power of deep learning to the
device, without relying on connectivity to the cloud. We believe this market opportunity for AI at the edge is
on top of our existing product lines and represents new licensing and royalty drivers for the company in the
coming years.
Our Hillcrest Labs sensor fusion business unit allows us to address an important technology for smart sensing,
in addition to our existing portfolio for camera-based computer vision and AI processing, and microphone-
based sound processing. MEMS-based inertial and environmental sensors are used in an increasing number of
devices, including robotics, smartphones, laptops, tablets, TWS earbuds, headsets, remote controls and many
other consumer and industrial devices. Hillcrest Labs’ innovative and proven MotionEngine™ software
supports a broad range of merchant sensor chips and is licensed to OEMs and semiconductor companies that
can run the software on CEVA DSPs or a variety of RISC CPUs. The MotionEngine software expands and
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complements CEVA’s smart sensing technology. Hillcrest Labs’ technology has already shipped in more than
150 million devices, indicative of its market traction and excellence. Along with our SensPro sensor fusion
processors, our licensees can now benefit from our capabilities as a complete, one-stop-shop for processing all
classes and types of sensors.
As a result of our diversification strategy beyond baseband for handsets, and our progress in addressing those new
markets under the base station and IoT umbrella, we experienced significant growth in royalty revenues derived from base
station and IoT product category (formerly referred to as non-handset products), up by 72% in 2020 to $22.3 million,
generated from a record 750 million royalty-bearing devices. We expect royalty growth to continue in this product category
for the next few years. These devices are comprised of a range of different products at different royalty ASPs, spanning
from high volume Bluetooth to high value sensor fusion and base station RAN. The royalty ASP of our other products will
be in between the two ranges.
COVID-19
Throughout the COVID-19 outbreak, we have continued our operations while taking a number of precautionary
health and safety measures to safeguard our employees at the same time as maintaining business continuity. We have also
provided training courses for working and managing from home, lectures and remote well-being activities to keep moral
and motivation high, and communication meetings and business updates from time to time. We are monitoring and assessing
orders issued by applicable governments to ensure compliance with evolving COVID-19 guidelines.
Despite the ongoing pandemic, we are encouraged by the persistent design activities of our customers and interests
in our products. We are focused on continuing to expand our business to capitalize on the momentum we gained last year.
We are further encouraged by recent indicators relating to our base station and IoT product category. During 2020, the world
encountered new trends and different seasonality than what we have experienced in prior years. Some consumer electronics
products sold well and some new technologies were widely adopted due to social distancing and other restrictions.
Nonetheless, prolonged measures to contain the spread of coronavirus pose uncertainty for economic activities. In particular,
in emerging markets where our primary exposure is in low tier handsets, COVID-19 has had a negative impact. While the
impact from COVID-19 on our financial results for the year ended December 31, 2020 was not material as set forth in the
below section discussing the results of operations, we are currently unable to determine or predict the nature, duration or
scope of the overall impact the pandemic will have on our business, results of operations, liquidity or capital resources for
the year 2021. For example, as of the date of this filing, while we see positive activity in our licensing and pipeline of deals,
customers in the semiconductor space from whom we collect royalties are experiencing more pressure on their operations
due to, among other reasons, longer manufacturing lead times as a result of COVID-19 related disruptions. We will continue
to closely monitor the effects of the ongoing pandemic on our operations, employees and customers.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in
the United States (U.S. GAAP). These accounting principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon
information available to us at the time that these estimates, judgments and assumptions are made. These estimates,
judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements,
as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material
differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.
The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our
reported financial results include the following:
revenue recognition;
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business combinations and valuation of goodwill and other acquired intangible assets;
income taxes;
equity-based compensation; and
impairment of marketable securities.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does
not require management’s judgment in its application. There are also areas in which management’s judgment in selecting
among available alternatives would not produce a materially different result.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the recognition of
revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these
judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of business
or market conditions. Management’s judgments and estimates have been applied consistently and have been reliable
historically.
Effective as of January 1, 2018, we have followed the provisions of Accounting Standards Codification (“ASC”)
Topic 606, Revenue from Contracts with Customers (“ASC 606”). The guidance provides a unified model to determine how
revenue is recognized. See Note 2 to our Consolidated Financial Statements for the year ended December 31, 2020 for
further information regarding revenue recognition.
The following is a description of principal activities from which we generate revenue. Revenues are recognized
when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services.
We determine revenue recognition through the following steps:
identification of the contract with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.
We enter into contracts that can include various combinations of products and services, as detailed below, which
are generally capable of being distinct and accounted for as separate performance obligations.
We generate our revenues from (1) licensing intellectual properties, which in certain circumstances are modified
for customer-specific requirements, (2) royalty revenues and (3) other revenues, which include revenues from support,
training and sale of development systems and chips. We license our IP to semiconductor companies throughout the world.
These semiconductor companies then manufacture, market and sell custom-designed chipsets to OEMs of a variety of
consumer electronics products. We also license our technology directly to OEMs, which are considered end users.
We account for our IP license revenues and related services, which provide our customers with rights to use our IP,
in accordance with ASC 606. A license may be perpetual or time limited in its application. In accordance with ASC 606,
we recognize revenue from IP license at the time of delivery when the customer accepts control of the IP, as the IP is
functional without professional services, updates and technical support. We have concluded that our IP license is distinct as
the customer can benefit from the software on its own.
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Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for
individual performance obligations separately, if they are distinct. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price basis. Stand-alone selling prices of IP license are typically
estimated using the residual approach. Stand-alone selling prices of services are typically estimated based on observable
transactions when these services are sold on a standalone basis.
When contracts involve a significant financing component, we adjust the promised amount of consideration for the
effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or
implicitly) provide the customer with a significant benefit of financing, unless the financing period is under one year and
only after the products or services were provided, which is a practical expediency permitted under ASC 606.
Revenues from contracts that involve significant customization of our IP to customer-specific specifications are
performance obligations we generally account for as performance obligations satisfied over time. Our performance does not
create an asset with alternative use, and we have an enforceable right to payment. We recognize revenue on such contracts
using cost based input methods, which recognize revenue and gross profit as work is performed based on a ratio between
actual costs incurred compared to the total estimated costs for the contract. Provisions for estimated losses on uncompleted
contracts are made during the period in which such losses are first determined, in the amount of the estimated loss on the
entire contract.
Revenues that are derived from the sale of a licensee’s products that incorporate our IP are classified as royalty
revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating our IP occurs.
Royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating
our IP or on a per unit basis, as specified in the agreements with the licensees. We receive the actual sales data from our
customers after the quarter ends and accounts for it as unbilled receivables. When we do not receive actual sales data from
the customer prior to the finalization of its financial statements, royalty revenues are recognized based on our estimation of
the customer’s sales during the quarter. We may engage a third party to perform royalty audits of our licensees, and if these
audits indicate any over- or under-reported royalties, we account for the results when the audits are resolved.
In addition to license fees, contracts with customers generally contain an agreement to provide for training and post
contract support, which consists of telephone or e-mail support, correction of errors (bug fixing) and unspecified updates
and upgrades. Fees for post contract support, which takes place after delivery to the customer, are specified in the contract
and are generally mandatory for the first year. After the mandatory period, the customer may extend the support agreement
on similar terms on an annual basis. We consider the post contract support performance obligation as a distinct performance
obligation that is satisfied over time, and as such, we recognize revenue for post contract support on a straight-line basis
over the period for which technical support is contractually agreed to be provided to the licensee, typically 12 months.
Training services are considered performance obligations satisfied over-time, and as such, revenues from training services
are recognized as the training is performed.
Revenues from the sale of development systems and chips are recognized when control of the promised goods or
services are transferred to the customers.
We capitalize sales commission as costs of obtaining a contract when they are incremental and, if they are expected
to be recovered, amortized in a manner consistent with the pattern of transfer of the good or service to which the asset
relates. If the expected amortization period is one year or less, the commission fee is expensed when incurred.
Business Combinations and Valuation of Goodwill and Other Acquired Intangible Assets
We allocate the fair value of purchase price consideration to the tangible assets acquired, liabilities assumed and
intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase price consideration
over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management
to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing
certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired
technology, and trade names from a market participant perspective, useful lives, and discount rates. Management’s estimates
of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable
and, as a result, actual results may differ from estimates.
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We review goodwill for impairment at least annually or more frequently if events or changes in circumstances
indicate that the carrying value of goodwill may not be recoverable in accordance with ASC 350 “Intangibles – Goodwill
and other” (“ASC 350”). ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to
perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not
indication of impairment, no further impairment testing is required. If an entity elects not to use this option, or if an entity
determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the entity
prepares a quantitative analysis to determine whether the carrying value of a reporting unit exceeds its estimated fair value.
If the carrying value of a reporting unit exceeds its estimated fair value, the entity recognizes an impairment of goodwill for
the amount of this excess, in accordance with the guidance in FASB Accounting Standards Update ("ASU") No. 2017-04,
Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. For each of the three years
for the period ended December 31, 2020, no impairment of goodwill has been identified.
Acquired finite-lived intangible assets are amortized over their estimated useful lives. We evaluate the
recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying
amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying
amounts to the future undiscounted cash flows the assets are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair
market value. We have not recorded any such impairment charge during the years presented.
In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of our finite-
lived intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance
would be amortized over the revised estimated useful life.
Income Taxes
We are subject to income taxes mainly in Israel, France, the U.S. and Ireland. Significant judgment is required in
evaluating our uncertain tax positions and determining our provision for income taxes. We recognize income taxes under
the liability method. Tax benefits are recognized from uncertain tax positions only if we believe that it is more likely than
not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the
position. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that
the final tax outcome of these matters will not be different. We adjust these reserves when facts and circumstances change,
such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes
in the period in which such determination is made. The provision for income taxes includes the effects of any reserves that
are considered appropriate, as well as the related net interest and penalties.
We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the
carrying amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss
carryforwards and tax credit carryforwards. We regularly review our deferred tax assets for recoverability and record a
valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. To
make this judgment, we make predictions of the amounts and category of taxable income from various sources and weigh
all available positive and negative evidence about these possible sources of taxable income.
Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also
assess our ability to utilize tax attributes, including those in the form of carry-forwards for which the benefits have already
been reflected in the financial statements. While we believe the resulting tax balances as of December 31, 2019 and 2020
are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable adjustments
to our consolidated financial statements and such adjustments could be material. See Note 14 to our Consolidated Financial
Statements for the year ended December 31, 2020 for further information regarding income taxes. We have filed or are in
the process of filing local and foreign tax returns that are subject to audit by the respective tax authorities. The amount of
income tax we pay is subject to ongoing audits by the tax authorities, which often result in proposed assessments. We believe
that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our
future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments
are made or resolved, audits are closed or when statute of limitations on potential assessments expire.
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We are subject to taxation in the United States, as well as a number of foreign jurisdictions. In December 2017, the
United States enacted U.S. tax reform. The legislation implements many new U.S. domestic and international tax provisions.
Some aspects of U.S. tax reform still remain unclear, and although additional clarifying guidance has been issued (by the
Internal Revenue Services, and the U.S. Treasury Department), there are still some areas that may not be clarified for some
time. Also, many of U.S. states have not yet updated their laws to take into account the new federal legislation. As a result,
there may be further impact of the new laws on our future results of operations and financial condition. It is possible that
U.S. tax reform, or interpretations under it, could change and could have an adverse effect on us, and such effect could be
material.
We have elected to account for global intangible low-taxed income (“GILTI”) as a current-period expense when
incurred. Legislation and clarifying guidance are expected to continue to be issued by the U.S. Treasury Department and
various states in 2021, which could have a material adverse impact on the value of our U.S. deferred tax assets, result in
significant changes to currently computed income tax liabilities for past and current tax periods, and increase our future
U.S. tax expense.
Equity-Based Compensation
We account for equity-based compensation in accordance with FASB ASC No. 718, “Stock Compensation” which
requires the recognition of compensation expenses based on estimated fair values for all equity-based awards made to
employees and non-employee directors. Equity-based compensation primarily includes restricted stock unit (“RSUs”), as
well as options, stock appreciation right (“SAR”), performance-based stock units (“PSUs”) and employee stock purchase
plan awards.
We elect the straight-line recognition method for awards subject to graded vesting based only on a service condition
and the accelerated method for awards that are subject to performance or market. The fair value of each RSU and PSU
(excluding PSUs based on market condition awards) is the market value as determined by the closing price of the common
stock on the grant date. We estimate the fair value of PSU based on market condition awards on the date of grant using the
Monte Carlo simulation model.
Impairment of Marketable Securities
Marketable securities consist mainly of corporate bonds. We determine the appropriate classification of marketable
securities at the time of purchase and re-evaluate such designation at each balance sheet date. In accordance with FASB
ASC No. 320, “Investments Debt and Equity Securities,” we classify marketable securities as available-for-sale. Available-
for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive
income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of marketable
securities, as determined on a specific identification basis, are included in financial income, net. The amortized cost of
marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together
with interest, are included in financial income, net. We have classified all marketable securities as short-term, even though
the stated maturity date may be one year or more beyond the current balance sheet date, because it is probable that we will
sell these securities prior to maturity to meet liquidity needs or as part of risk versus reward objectives.
Starting on January 1, 2020, as a result of the adoption of ASC 326, available-for-sale debt securities with an
amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is
caused by expected credit losses. Expected credit losses on available-for-sale debt securities are recognized in financial
income, net, on our consolidated statements of income (loss), and any remaining unrealized losses, net of taxes, are included
in accumulated other comprehensive income (loss) in stockholders' equity. The amount of credit losses recorded for the
twelve months ended December 31, 2020 was not material. We have not recorded any impairment charge for unrealized
losses during the period presented. We determine realized gains or losses on sale of marketable securities using a specific
identification method, and records such gains or losses as interest and other income (expense), net.
Prior to 2020, we recognized an impairment charge when a decline in the fair value of our investments in debt
securities below the cost basis of such securities was considered to be other-than-temporary. The determination of credit
losses requires significant judgment and actual results may be materially different from our estimates. Factors considered
in making such a determination include the duration and severity of the impairment, the reason for the decline in value and
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the potential recovery period. For securities that were deemed other-than-temporarily impaired, the amount of impairment
was recognized in the statement of income (loss) and was limited to the amount related to credit losses, while impairment
related to other factors was recognized in other comprehensive income (loss).
During the years ended December 31, 2018, 2019 and 2020, no other-than temporary impairment were recorded
related to our marketable securities.
Recently Adopted Accounting Pronouncement
On January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments –
Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires that expected credit losses relating to financial
assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for
credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the
amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if
fair value increases. The adoption did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles: Goodwill and Other: Simplifying the Test for
Goodwill Impairment.” To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the
goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a
reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the
reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also
eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill
impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the
qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason
for the change in accounting principle should be disclosed upon transition. We adopted ASU 2017-04 as of January 1, 2020.
The adoption of the new guidance did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncement
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. ASU
2019-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15,
2020. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
RESULTS OF OPERATIONS
The following table presents line items from our consolidated statements of income (loss) as percentages of our
total revenues for the periods indicated:
Consolidated Statements of Income (Loss) Data:
Revenues:
Licensing and related revenue
Royalties
Total revenues
2018
2019
2020
51.9%
48.1%
100.0%
54.9%
45.1%
100.0%
52.3%
47.7%
100.0%
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Cost of revenues
Gross profit
Operating expenses:
Research and development, net
Sales and marketing
General and administrative
Amortization of intangible assets
Total operating expenses
Operating loss
Financial income, net
Revaluation of investment in non-marketable equity securities
Income before taxes on income
Taxes on income
Net income (loss)
Discussion and Analysis
2018
10.2%
89.8%
2019
11.6%
88.4%
2020
10.7%
89.3%
61.8%
60.6%
61.3%
11.9%
14.2%
15.6%
14.1%
13.6%
13.3%
2.3%
2.2%
1.2%
91.4%
90.1%
90.6%
(1.6)% (2.2)% (0.8)%
3.3%
3.8%
4.4%
—
(1.1)% —
2.5%
1.6%
1.7%
4.9%
1.5%
1.0%
(2.4)%
0.1%
0.7%
Below we provide information on the significant line items in our consolidated statements of income (loss) for each
of the past three fiscal years, including the percentage changes year-on-year, as well as an analysis of the principal drivers
of change in these line items from year-to-year.
Revenues
Total Revenues
Total revenues (in millions)
Change year-on-year
2018
$ 77.9
—
2019
$ 87.2
11.9% 15.1%
2020
$100.3
We derive a significant amount of revenues from a limited number of customers. Sales to Spreadtrum represented
14%, 15% and 15% of our total revenues for 2020, 2019 and 2018, respectively. Sales to Intel represented 15%, 19% and
19% of our total revenues for 2020, 2019 and 2018, respectively. Generally, the identity of our other customers representing
10% or more of our total revenues varies from period to period, especially with respect to our licensing customers as we
generate licensing revenues generally from new customers on a quarterly basis. With respect to our royalty revenues, four
royalty paying customers each represented 10% or more of our total royalty revenues for 2020, and collectively represented
72% of our total royalty revenues for 2020. Three royalty paying customers each represented 10% or more of our total
royalty revenues for 2019, and collectively represented 73% of our total royalty revenues for 2019. Three royalty paying
customers each represented 10% or more of our total royalty revenues for 2018, and collectively represented 76% of our
total royalty revenues for 2018. We expect that a significant portion of our future revenues will continue to be generated
by a limited number of customers. The concentration of our customers is explainable in part by consolidation in the
semiconductor industry. The loss of any significant customer could adversely affect our near-term future operating results.
The following table sets forth the products and services as percentages of our total revenues in each of the periods
set forth below:
Connectivity products (baseband for handset and
other devices, Bluetooth, Wi-Fi, NB-IoT, and
SATA/SAS)
Smart sensing products (AI, sensor fusion,
audio/sound and imaging and vision)
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Year ended December 31,
2020
2019
2018
84%
81%
78%
16%
19%
22%
Year ended December 31,
2020
2019
2018
We expect to continue to generate a significant portion of our revenues for 2020 from the above products and
services.
Licensing and related revenue
Licensing and related revenue (in millions)
Change year-on-year
2018
$ 40.4
—
2019
$ 47.9
18.4%
2020
$ 52.5
9.7%
Total 2020 licensing and related revenue reached a new all-time record high, due to diversification of technologies,
markets, new and recurring customers and overall sales execution. The increase in licensing and related revenues from 2019
to 2020 principally reflected an increase in Bluetooth and base station licensing deals, partially offset by decreased revenues
from licensing of handset baseband and vision products. The increase in licensing and related revenues from 2018 to 2019
principally reflected an increase in vision and handset baseband licensing deals, partially offset by decreased revenues from
licensing of Bluetooth products.
For 2021, we look to continue to be at the forefront of the digital transformation and capitalize on our core
technologies and customer diversity to grow our market share and maximize our return from growing industries, in particular
5G RAN, Wi-Fi, TWS earbuds and automotive. These industries present multi-year growth opportunities for our
connectivity, sensing and AI technologies, and we believe we are well positioned to take advantage of such growth.
Our licensing business hit another record high number of license agreements signed, reaching 55 agreements signed,
of which 17 were first-time customers. The licensing environment continues to be healthy with strong demand for our
product portfolio.
Licensing and related revenue accounted for 52.3% of our total revenues for 2020, compared with 54.9% and 51.9%
of our total revenues for 2019 and 2018, respectively.
Royalty Revenues
Royalty revenues (in millions)
Change year-on-year
2018
$ 37.4
—
2019
$ 39.3
2020
$ 47.8
4.9% 21.8%
We generate royalty revenues from our customers who ship units of chips incorporating our technologies. Our
royalty revenues represent what our customers shipped during any quarter, or our best estimates for such shipments. The
royalty rate is based either on a certain percent of the chipset price or a fixed amount per chipset based on volume discounts.
Based on internal data and Strategy Analytics’ provisional worldwide shipment data, CEVA’s worldwide market
share of handset baseband chips that incorporate our technologies represented approximately 26%, 26% and 25% of the
worldwide baseband volume in 2020, 2019 and 2018, respectively, and accounted for approximately 53%, 67% and 77%
of our total royalty revenues for 2020, 2019 and 2018, respectively.
Our 2020 royalty revenue reached to a new record high. The main growth driver was attributed to base station and
IoT product categories, which increased 72% in revenue comparing a year ago, reaching a new high of $22.3 million. We
also believe that this growth trend will continue into 2021, although we cannot assess its magnitude and timing.
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Total shipments in 2020 increased 27% year-over-year to over 1.3 billion units, up from 1 billion in 2019. Total
shipment volume in 2018 was 929 million. Annual shipments of base station & IoT customers reached a new record of 750
million units in 2020. 2019 non-handset baseband unit shipments were up 25% year-over-year to 469 million units.
The five largest royalty-paying customers accounted for 76% of our total royalty revenues for 2020, compared to
84% of our total royalty revenues for 2019 and 86% of our total royalty revenues for 2018.
Geographic Revenue Analysis
2018
2019
2020
United States
Europe, Middle East (EME) (3)
Asia Pacific (APAC) (1) (2)
(in millions, except percentages)
$ 8.3 10.7%
$ 17.4 22.3%
$ 52.2 67.0%
$ 16.6 19.0%
$ 21.5 24.7%
$ 49.0 56.3%
$ 20.8 20.8%
$ 12.0 11.9%
$ 67.5 67.3%
(1) China
(2) S. Korea
(3) Germany
*) Less than 10%
$ 33.7
43.2%
$ 33.2
38.1%
$ 51.7
51.6%
$ 8.0
10.3%
*)
*)
$ 13.9
17.8%
$ 16.1
18.5%
*)
*)
*)
*)
A majority of our revenues during the past three years have originated in the APAC region, with China representing
the largest revenue share of countries in the APAC region. The increase in revenues in absolute dollars and percentage
terms in APAC was due to strong licensing execution and higher royalties from our base station and IoT product lines. The
decrease in revenues in absolute dollars and percentage in the APAC region from 2018 to 2019 was due to lower licensing
revenues, partially offset by higher handset baseband royalties following a gradual recovery in the cellular industry, and
strong contribution of non-handset baseband products, especially contribution from our new sensor fusion business.
The increase in revenues in absolute dollars and percentage terms in the United States from 2019 to 2020 reflected
mainly higher royalties from one customer that moved its billing process from EME to the United States, which also
explained the decrease in EME revenues in absolute dollars and percentage terms. The increase in revenues in absolute
dollars and percentage terms in the United States from 2018 to 2019 reflected improved licensing and related revenues,
reaching an all-time highs. The increase in revenues in absolute dollars and percentage in the EME region from 2018 to
2019 primarily reflected higher royalty revenues due to a share gain at a large U.S. handset OEM and customer shipment
ramps in non-handset baseband products, offset by lower licensing revenues.
Cost of Revenues
Cost of revenues (in millions)
Change year-on-year
2018
$ 8.0
—
2019
$ 10.1
27.1% 6.4%
2020
$ 10.7
Cost of revenues accounted for 10.7% of our total revenues for 2020, compared to 11.6% of our total revenues for
2019 and 10.2% of our total revenues for 2018. The absolute dollar increase in cost of revenues for 2020 as compared to
2019 principally reflected higher salaries and related costs (partially due to salary and related costs associated with the
Hillcrest Labs employees being included in the results for the first half of 2020, which costs were not incurred for the first
half of 2019), higher payments to the Israeli Innovation Authority of the Ministry of Economy and Industry in Israel (the
“IIA”), higher materials related to the Hillcrest Labs business and higher amortization cost related to acquired assets
(Immervision technologies), partially offset by lower customization work for our licensees, lower third-party IP costs
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associated with the NB-IoT product line and lesser travel due to COVID-19. The absolute dollar increase in cost of revenues
for 2019 as compared to 2018 principally reflected higher customization work for our licensees, and higher salaries and
related costs.
Cost of revenues includes labor-related costs and, where applicable, costs related to overhead, subcontractors,
materials, travel, royalty expenses payments to the IIA, amortization of acquired assets and non-cash equity-based
compensation expenses. Non-cash equity-based compensation expenses included in cost of revenues for the years 2020,
2019 and 2018 were $639,000, $630,000 and $588,000, respectively. Royalty expenses relate to royalties payable to the IIA
that amount to 3%-3.5% of the actual sales of certain of our products, the development of which previously included grants
from the IIA. The obligation to pay these royalties is contingent on actual sales of these products. Amortization of acquired
assets related to the purchase of a license of NB-IoT technologies in the first quarter of 2018 and to a strategic technology
investment in Immervision in the third quarter of 2019. Our amortization charges were $0.7 million, $0.4 million and $0.3
million for 2020, 2019 and 2018, respectively.
We anticipate that our cost of revenues will increase in 2021 as compared to 2020 in the amount of approximately
$0.5 million, due to more cost of chip sales for our Hillcrest Labs related business.
Operating Expenses
Research and development, net
Sales and marketing
General and administration
Amortization of intangible assets
Total operating expenses
Change year-on-year
2018
$ 47.8
$ 12.2
$ 10.3
$ 0.9
$ 71.2
—
2019
(in millions)
$ 52.8
$ 12.4
$ 11.8
$ 1.9
$ 78.9
11.0%
2020
$ 62.0
$ 11.9
$ 14.1
$ 2.3
$ 90.3
14.4%
The increase in total operating expenses for 2020 as compared to 2019 principally reflected (1) higher salary and
employee-related costs, mainly due to higher headcount, and the inclusion of salary and related costs associated with the
Hillcrest Labs employees for the first half of 2020, which costs were not incurred for the first half of 2019 as the acquisition
of the Hillcrest Labs business was consummated in July 2019, (2) lower research grants received from the IIA, and (3)
higher non-cash equity-based compensation expenses. The increase in total operating expenses for 2019 as compared to
2018 principally reflected (1) higher salary and employee-related costs, mainly due to higher headcount, and first time salary
and related costs associated with the Hillcrest Labs employees, (2) higher professional services cost and a lease write-off
related to the acquisition of the Hillcrest Labs business, (3) higher amortization of intangible assets associated with the
acquisition of the Hillcrest Labs business and technology investment in Immervision during the third quarter of 2019, and
(4) higher research and development project-related costs, partially offset by higher research grants received (mainly from
the IIA).
Research and Development Expenses, Net
Research and development expenses, net (in millions)
Change year-on-year
2018
$ 47.8
—
2019
$ 52.8
2020
$ 62.0
10.7%
17.3%
The net increase in research and development expenses for 2020 as compared to 2019 principally reflected (1)
higher salary and employee-related costs, mainly due to higher headcount, and the inclusion of salary and related costs
associated with the Hillcrest Labs employees for the first half of 2020, which costs were not incurred for the first half of
2019 as the acquisition of the Hillcrest Labs business was consummated in July 2019, (2) lower research grants received,
mainly from the IIA, and (3) higher non-cash equity-based compensation expenses, partially offset by higher Crédit Impôt
Recherche (“CIR”) granted. The net increase in research and development expenses for 2019 as compared to 2018
principally reflected (1) higher salary and employee-related costs, mainly due to higher headcount, and first time salary
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and related costs associated with the Hillcrest Labs employees, and (2) higher project related expenses, partially offset by
higher research grants received, mainly from the IIA. The average number of research and development personnel in
2020 was 298, compared to 273 in 2019 and 238 in 2018. The number of research and development personnel was 304 at
December 31, 2020 as compared to 289 in 2019 and 254 in 2018.
We anticipate that our research and development expenses cost will continue to increase in 2021. The increase
will be approximately $6 million, approximately half of which $3 million, is associated with the devaluation of the U.S.
dollar compared to other currencies that we use, as well as additional disciplined investments in research and development
projects.
Research and development expenses, net of related government grants and French research tax benefits applicable
to CIR, were 61.8% of our total revenues for 2020, as compared with 60.6% for 2019 and 61.3% for 2018. We recorded
research grants under funding programs of $2,844,000 in 2020, compared with $5,643,000 in 2019 and $3,352,000 in 2018.
We recorded CIR benefits of $3,287,000, $2,312,000 and $2,065,000 for 2020, 2019 and 2018, respectively.
Research and development expenses consist primarily of salaries and associated costs, facilities expenses associated
with research and development activities, project-related expenses connected with the development of our intellectual
property which are expensed as incurred, and non-cash equity-based compensation expenses. Non-cash equity-based
compensation expenses included in research and development expenses, net for the years 2020, 2019 and 2018 were
$6,874,000, $5,857,000 and $5,141,000, respectively. Research and development expenses are net of related government
research grants and research tax benefits applicable to CIR. We view research and development as a principal strategic
investment and have continued our commitment to invest heavily in this area, which represents the largest of our ongoing
operating expenses. We will need to continue to invest in research and development and such expenses may increase in the
future to keep pace with new trends in our industry.
Sales and Marketing Expenses
Sales and marketing expenses (in millions)
Change year-on-year
2018
$ 12.2
—
2019
$ 12.4
2020
$ 11.9
1.7% (3.7)%
The decrease in sales and marketing expenses for 2020 as compared to 2019 principally reflected lesser travel and
physical marketing activities and events (like trade shows), but more digital related activities at lesser costs, due to COVID-
19, partially offset by higher non-cash equity-based compensation expenses. The slight increase in sales and marketing
expenses for 2019 as compared to 2018 principally reflected higher commission expenses, offset by lower salary and
employee related costs.
Sales and marketing expenses as a percentage of our total revenues were 11.9% for 2020, as compared with 14.2%
for 2019 and 15.6% for 2018. The total number of sales and marketing personnel was 35 in 2020, as compared with 33 in
2019 and 32 in 2018. Sales and marketing expenses consist primarily of salaries, commissions, travel and other costs
associated with sales and marketing activities, as well as advertising, trade show participation, public relations and other
marketing costs and non-cash equity-based compensation expenses. Non-cash equity-based compensation expenses
included in sales and marketing expenses for the years 2020, 2019 and 2018 were $2,038,000, $1,495,000 and $1,587,000,
respectively.
General and Administrative Expenses
General and administrative expenses (in millions)
Change year-on-year
2018
2020
2019
$ 10.3 $ 11.8 $ 14.1
—
14.4% 19.2%
The increase in general and administrative expenses for 2020 as compared to 2019 principally reflected higher
allowance for credit losses and higher non-cash equity-based compensation expenses. The increase in general and
administrative expenses for 2019 as compared to 2018 principally reflected higher professional services cost and a lease
write-off related to the acquisition of the Hillcrest Labs business, as well as higher salaries and employee related costs.
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General and administrative expenses as a percentage of our total revenues were 14.1% for 2020, as compared with
13.6% for 2019 and 13.3% for 2018. The total number of general and administrative personnel was 34 in 2020, as compared
with 32 in 2019 and 32 in 2018. General and administrative expenses consist primarily of fees for directors, salaries for
management and administrative employees, accounting and legal fees, expenses related to investor relations and facilities
expenses associated with general and administrative activities and non-cash equity-based compensation expenses. Non-cash
equity-based compensation expenses included in general and administrative expenses for the years 2020, 2019 and 2018
were $4,085,000, $2,736,000 and $3,051,000, respectively.
Amortization of Intangible Assets
Our amortization charges were $2.3 million, $1.9 million and $0.9 million for 2020, 2019 and 2018 respectively.
The charges in 2018 were incurred in connection with the amortization of intangible assets associated with the acquisition
of RivieraWaves. The amortization charges in 2019 were incurred in connection with the amortization of intangible assets
associated with (1) the acquisition of RivieraWaves in July 2014, which was fully amortized in 2019 (2) the acquisition of
the Hillcrest Labs business in July 2019, and (3) a technology investment in Immervision in August 2019. The amortization
charges in 2020 were incurred in connection with the amortization of intangible assets associated with (1) the acquisition
of the Hillcrest Labs business, and (2) a technology investment in Immervision. As of December 31, 2020, the net amount
of intangible assets associated with the acquisitions was $9.7 million.
Financial Income, net
Financial income, net
of which:
Interest income and gains and losses from marketable securities, net
Foreign exchange gain (loss)
2018
$3.42
2019
(in millions)
$3.29
$3.66
$(0.24)
$3.64
$(0.35)
2020
$3.28
$2.84
$0.44
Financial income, net, consists of interest earned on investments, gains and losses from sale of marketable securities,
accretion (amortization) of discount (premium) on marketable securities and foreign exchange movements.
The decrease in interest income and gains and losses from marketable securities, net, for 2020 as compared to 2019
reflected lower combined cash, bank deposits and marketable securities balances held (mainly as a result of the acquisition
of the Hillcrest Labs business and the technology investment in Immervision during the third quarter of 2019) and lower
yields. The slight decrease in interest income and gains and losses from marketable securities, net, for 2019 as compared to
2018 reflected lower combined cash, bank deposits and marketable securities balances held, offset with higher yields.
We review our monthly expected major non-U.S. dollar denominated expenditures and look to hold equivalent non-
U.S. dollar cash balances to mitigate currency fluctuations. This has resulted in a foreign exchange gain of 0.44 million, a
foreign exchange loss of $0.35 million and a foreign exchange loss of $0.24 million for 2020, 2019 and 2018, respectively.
Revaluation of investment in other company
We recorded a loss of $870 in 2018 related to revaluation of our investment in non-marketable equity securities, in
which we hold in cost. During the years ended December 31, 2020 and 2019, no impairment loss was identified.
Provision for Income Taxes
During the years 2020, 2019 and 2018, we recorded tax expenses of $4.9 million, $1.3 million and $0.7 million,
respectively. The increase in provision for income taxes in 2020 as compared to 2019 principally reflected withholding tax
expenses for which we will not be able to obtain a refund from certain tax authorities, and a tax benefit of $1.0 million
recorded in the third quarter of 2019 due to the release of a tax provision as a result of the completion of a tax audit in a
certain foreign tax jurisdiction. The provision for income taxes in 2019 reflects an increase in income earned in certain
foreign jurisdictions, as well as higher withholding tax expenses which we were unable to obtain a refund from certain tax
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authorities and changes in deferred tax assets due to a change in the estimation for taxable income for future years, partially
offset by a tax benefit of $1.0 million due to the release of a tax provision as a result of the completion of a tax audit in a
certain foreign tax jurisdiction.
We are subject to income and other taxes in the United States and in numerous foreign jurisdictions. Our domestic
and foreign tax liabilities are dependent on the jurisdictions in which profits are determined to be earned and taxed.
Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we
operate. A number of factors influence our effective tax rate, including changes in tax laws and treaties as well as the
interpretation of existing laws and rules. Federal, state, and local governments and administrative bodies within the United
States, and other foreign jurisdictions have implemented, or are considering, a variety of broad tax, trade, and other
regulatory reforms that may impact us. For example, the Tax Cuts and Jobs Act (the “U.S. Tax Reform”) enacted on
December 22, 2017 resulted in changes in our corporate tax rate, our deferred income taxes, and the taxation of foreign
earnings. It is not currently possible to accurately determine the potential comprehensive impact of these or future changes,
but these changes could have a material impact on our business and financial condition.
We have significant operations in Israel and operations in France and the Republic of Ireland. A substantial portion
of our taxable income is generated in Israel and France. Currently, our Israeli and Irish subsidiaries are taxed at rates
substantially lower than U.S. tax rates. Starting in 2020 and continuing into 2021, our French subsidiary was in a profit
position and local French tax rate of 28% was applied, that is significantly higher than the Company’s overall blended tax
rate.
Our Irish subsidiary qualified for a 12.5% tax rate on its trade. Interest income generated by our Irish subsidiary is
taxed at a rate of 25%.
In 2017, the French government passed a series of tax reforms allowing for a phased reduction in the corporate tax
rate. In accordance with the tax reforms, our French subsidiary qualified in 2018 for a corporate tax rate of 28% for taxable
profit up to €500,000 (approximately $559,930) and the standard rate of 33.33% for taxable profit above €500,000
(approximately $559,930). In 2019, the standard corporate income tax rate is reduced to 31%, with the first €500,000
(approximately $559,930) of taxable profit still being subject to the reduced 28% rate. In 2020, a corporate income tax rate
of 28% is became the new standard rate for all taxable profits. In 2021, the corporate income tax rate will be reduced to
26.5%. In 2022, the standard corporate income tax rate will be further reduced to 25%.
Our Israeli subsidiary is entitled to various tax benefits as a technological enterprise. In December 2016, the
Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget
Years), 2016, which includes the Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment
73) (the “Amendment”), was published. The Amendment, among other things, prescribes special tax tracks for technological
enterprises, which are subject to rules that were issued by the Minister of Finance in April 2017.
The new tax track under the Amendment, which is applicable to our Israeli subsidiary, is the “Technological
Preferred Enterprise.” Technological Preferred Enterprise is an enterprise for which total consolidated revenues of its parent
company and all subsidiaries are less than 10 billion New Israeli Shekel (“NIS”). A Technological Preferred Enterprise, as
defined in the Amendment, that is located in the center of Israel (where our Israeli subsidiary is currently located), is taxed
at a rate of 12% on profits deriving from intellectual property. Any dividends distributed to “foreign companies,” as defined
in the Amendment, deriving from income from technological enterprises will be taxed at a rate of 4%. We are applying the
Technological Preferred Enterprise tax track for our Israeli subsidiary from tax year 2020 and onwards.
To maintain our Israeli subsidiary’s eligibility for the above tax benefits, it must continue to meet certain conditions
under the Investment Law. Should our Israeli subsidiary fail to meet such conditions in the future, these benefits would be
cancelled and it would be subject to corporate tax in Israel at the standard corporate rate and could be required to refund tax
benefits already received, with interest and adjustments for inflation based on the Israeli consumer price index.
For more information about our provision for income taxes, see Note 14 to the attached Notes to Consolidated
Financial Statement for the year ended December 31, 2020.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2020, we had approximately $21.1 million in cash and cash equivalents, $20.2 million in short
term bank deposits, $88.8 million in marketable securities, and $29.5 million in long term bank deposits, totaling
$159.6 million, as compared to $150.0 million at December 31, 2019. The increase in 2020 as compared to 2019 principally
reflected cash provided by operations, partially offset by funds used to repurchase 202,392 shares of common stock for an
aggregate consideration of approximately $4.8 million.
Out of total cash, cash equivalents, bank deposits and marketable securities of $159.6 million at year end 2020,
$134.8 million was held by our foreign subsidiaries. Our intent is to permanently reinvest earnings of our foreign subsidiaries
and our current operating plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations.
However, if these funds were needed for our operations in the United States, we would be required to accrue and pay taxes
to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is
not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the
various jurisdictions from which the cash would be repatriated.
During 2020, we invested $99.9 million of cash in bank deposits and marketable securities with maturities up to 56
months from the balance sheet date. In addition, during the same period, bank deposits and marketable securities were sold
or redeemed for cash amounting to $87.6 million. During 2019, we invested $66.5 million of cash in bank deposits and
marketable securities with maturities up to 53 months from the balance sheet date. In addition, during the same period,
bank deposits and marketable securities were sold or redeemed for cash amounting to $85.9 million. During 2018, we
invested $41.3 million of cash in bank deposits and marketable securities with maturities up to 51 months from the balance
sheet date. In addition, during the same period, bank deposits and marketable securities were sold or redeemed for cash
amounting to $56.4 million. All of our marketable securities are classified as available-for-sale. The purchase and sale or
redemption of available-for-sale marketable securities are considered part of investing cash flow. Available-for-sale
marketable securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive
income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of investments,
as determined on a specific identification basis, are included in the consolidated statements of income (loss). We did not
recognize any credit losses in 2020 and any other-than-temporarily-impaired charges on marketable securities in 2019 and
2018. For more information about our marketable securities, see Notes 1 and 3 to the attached Notes to Consolidated
Financial Statement for the year ended December 31, 2020.
Bank deposits are classified as short-term bank deposits and long-term bank deposits. Short-term bank deposits are
deposits with maturities of more than three months but no longer than one year from the balance sheet date, whereas long-
term bank deposits are deposits with maturities of more than one year as of the balance sheet date. Bank deposits are
presented at their cost, including accrued interest, and purchases and sales are considered part of cash flows from investing
activities.
Operating Activities
Cash provided by operating activities in 2020 was $15.2 million and consisted of a net loss of $2.4 million,
adjustments for non-cash items of $19.3 million, and changes in operating assets and liabilities of $1.7 million. Adjustments
for non-cash items primarily consisted of $5.8 million of depreciation and amortization of intangible assets, and $13.6
million of equity-based compensation expenses. The decrease in cash from changes in operating assets and liabilities
primarily consisted of an increase in trade receivables of $2.9 million, an increase in prepaid expenses and other assets of
$0.6 million, and a decrease in deferred revenues of $1.2 million, partially offset by a decrease in accrued interest on bank
deposits of $1.2 million, and an increase in accrued payroll and related benefits of $1.8 million.
Cash provided by operating activities in 2019 was $9.7 million and consisted of net income of $28,000, adjustments
for non-cash items of $16.8 million, and changes in operating assets and liabilities of $7.1 million. Adjustments for non-
cash items primarily consisted of $5.3 million of depreciation and amortization of intangible assets, $10.7 million of equity-
based compensation expenses, and $0.6 million of amortization of premiums on available-for-sale marketable securities.
The decrease in cash from changes in operating assets and liabilities primarily consisted of an increase in trade receivables
of $2.2 million, an increase in prepaid expenses and other assets of $4.2 million (mainly as a result of a technology
investment in Immervision of $2.9 million), an increase in deferred taxes, net, of $3.6 million (mainly due to (1) a release
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of a tax provision as a result of the completion of a tax audit in a certain foreign tax jurisdiction, and (2) an increase in
withholding tax assets which can be utilized in future years), partially offset by an increase in accrued payroll and related
benefits of $3.1 million.
Cash provided by operating activities in 2018 was $8.6 million and consisted of net income of $0.6 million,
adjustments for non-cash items of $16.4 million, and changes in operating assets and liabilities of $8.4 million. Adjustments
for non-cash items primarily consisted of $4.2 million of depreciation and amortization of intangible assets, $10.4 million
of equity-based compensation expenses, $0.8 million of amortization of premiums on available-for-sale marketable
securities and $0.9 million of revaluation of investment in non-marketable equity securities in which we hold at cost. The
decrease in cash from changes in operating assets and liabilities primarily consisted of an increase in trade receivables of
$0.5 million, an increase in prepaid expenses and other assets of $3.9 million (mainly as a result of an increase in French
research tax credits which is generally refunded every three years), an increase in accrued interest on bank deposits of $0.6
million, an increase in deferred tax, net, of $2.2 million, a decrease in deferred revenues of $0.8 million, a decrease in
accrued expenses and other payables of $0.5 million, and a decrease in accrued payroll and related benefits of $0.5 million.
Cash flows from operating activities may vary significantly from quarter to quarter depending on the timing of our
receipts and payments. Our ongoing cash outflows from operating activities principally relate to payroll-related costs and
obligations under our property leases and design tool licenses. Our primary sources of cash inflows are receipts from our
accounts receivable, to some extent funding from the IIA and interest earned from our cash, deposits and marketable
securities. The timing of receipts of accounts receivable from customers is based upon the completion of agreed
milestones or agreed dates as set out in the contracts.
Investing Activities
Net cash used in investing activities in 2020 was $15.4 million, as compared to net cash used in investing activities
of $2.4 million in 2019 and net cash provided by investing activities of $9.8 million in 2018. We had a cash outflow of
$56.0 million with respect to investments in marketable securities and a cash inflow of $32.2 million with respect to
maturity, and sale, of marketable securities during 2020. Included in the cash inflow during 2020 was net proceeds of $11.5
million from bank deposits. We had a cash outflow of $27.2 million with respect to investments in marketable securities
and a cash inflow of $40.5 million with respect to maturity, and sale, of marketable securities during 2019. Included in the
cash inflow during 2019 was net proceeds of $6.1 million from bank deposits. We had a cash outflow of $19.7 million with
respect to investments in marketable securities and a cash inflow of $23.5 million with respect to maturity, and sale, of
marketable securities during 2018. Included in the cash inflow during 2018 was net proceeds of $11.3 million from bank
deposits. Capital equipment purchases of computer hardware and software used in engineering development, furniture and
fixtures amounted to approximately $2.9 million in 2020, $3.5 million in 2019 and $3.3 million in 2018. We had a cash
outflow of $0.3 million and $2.0 million in 2019 and 2018, respectively, from the purchase of a license of NB-IoT
technologies. We had a cash outflow of $0.2 million and $18.1 million in 2020 and 2019, respectively, for the acquisition
of the Hillcrest Labs business and the technology investment in Immervision.
Financing Activities
Net cash used in financing activities in 2020 was $1.9 million, as compared to net cash used in financing activities
of $6.7 million in 2019 and net cash used in financing activities of $17.8 million in 2018.
In August 2008, we announced that our board of directors approved a share repurchase program for up to one
million shares of common stock which was further extended collectively by an additional 5,700,000 shares in 2010, 2013,
2014 and 2018. In February 2020, our board of directors authorized the repurchase of an additional 700,000 shares of
common stock. In 2020, we repurchased 202,392 shares of common stock at an average purchase price of $23.62 per share
for an aggregate purchase price of $4.8 million. In 2019, we repurchased 355,180 shares of common stock at an average
purchase price of $25.66 per share for an aggregate purchase price of $9.1 million. In 2018, we repurchased 655,876 shares
of common stock at an average purchase price of $30.51 per share for an aggregate purchase price of $20.0 million. As of
December 31, 2020, we had 497,608 shares available for repurchase.
In 2020, 2019 and 2018, we received $2.9 million, $2.4 million and $2.2 million, respectively, from the exercise of
stock-based awards.
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We believe that our cash and cash equivalent, short-term bank deposits and marketable securities, along with cash
from operations, will provide sufficient capital to fund our operations for at least the next 12 months. We cannot provide
assurance, however, that the underlying assumed levels of revenues and expenses will prove to be accurate.
In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products
and technologies and minority equity investments. Accordingly, a portion of our available cash may be used at any time
for the acquisition of complementary products or businesses or minority equity investments. Such potential transactions
may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot
assure you that we will be able to successfully identify suitable acquisition or investment candidates, complete acquisitions
or investments, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we
cannot provide assurance that additional financing will be available to us in any required time frame and on commercially
reasonable terms, if at all. See “Risk Factors—We may seek to expand our business in ways that could result in diversion
of resources and extra expenses.” for more detailed information.
Contractual Obligations
The table below presents the principal categories of our contractual obligations as of December 31, 2020:
Payments Due by Period
($ in thousands)
Operating Lease Obligations – Leasehold properties
Purchase Obligations – design tools
Other purchase Obligations
Total
Less than
1
year
1-3 years 3-5 years
Total
844
1,338
6,439 4,273 2,166
2,067 1,976
91
9,844 6,735 3,101
486
More than
5 years
—
—
—
—
8
—
—
8
Operating leasehold obligations principally relate to our offices in Israel, Ireland, United Kingdom, France, China,
Japan and the United States. Purchase obligations relate to license agreements entered into for maintenance of design tools.
Other purchase obligations consist of capital and operating purchase order commitments. Other than set forth in the table
above, we have no long-term debt or capital lease obligations.
At December 31, 2020, our income tax payable, net of withholding tax credits, included $1,558,000 related to
uncertain tax positions. Due to uncertainties in the timing of the completion of tax audits, the timing of the resolution of
these positions is uncertain and we are unable to make a reasonably reliable estimate of the timing of payments. As a result,
this amount is not included in the above table.
In addition, at December 31, 2020, the amount of accrued severance pay was $11,226,000. Severance pay relates
to accrued severance obligations to our Israeli employees as required under Israeli labor laws. These obligations are payable
only upon termination, retirement or death of the respective employee. Of this amount, $690,000 is unfunded.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in recently enacted rules by the
Securities and Exchange Commission, that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A majority of our revenues and a portion of our expenses are transacted in U.S. dollars and our assets and liabilities
together with our cash holdings are predominately denominated in U.S. dollars. However, the majority of our expenses are
denominated in currencies other than the U.S. dollar, principally the NIS and the EURO. Increases in volatility of the
exchange rates of currencies other than the U.S. dollar versus the U.S. dollar could have an adverse effect on the expenses
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and liabilities that we incur when remeasured into U.S. dollars. We review our monthly expected non-U.S. dollar
denominated expenditures and look to hold equivalent non-U.S. dollar cash balances to mitigate currency fluctuations. This
has resulted in a foreign exchange gain of $0.44 million, a foreign exchange loss of $0.35 million and a foreign exchange
loss of $0.24 million for 2020, 2019 and 2018, respectively.
As a result of currency fluctuations and the remeasurement of non-U.S. dollar denominated expenditures to U.S.
dollars for financial reporting purposes; we may experience fluctuations in our operating results on an annual and quarterly
basis. To protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in
currencies other than the U.S. dollar during the year, we follow a foreign currency cash flow hedging program. We hedge
portions of the anticipated payroll for our non-U.S. employees denominated in currencies other than the U.S. dollar for a
period of one to twelve months with forward and option contracts. During 2020, 2019 and 2018 , we recorded accumulated
other comprehensive loss of $49,000, accumulated other comprehensive gain of $117,000 and accumulated other
comprehensive loss of $68,000 , respectively, from our forward and option contracts, net of taxes, with respect to anticipated
payroll expenses for our non-U.S. employees. As of December 31, 2020, we had no unrealized gain (loss) from our forward
and option contracts. We recognized a net gain of 0.69 million, a net gain of 0.31 million and a net loss of $0.35 million
for 2020, 2019 and 2018, respectively, related to forward and options contracts. We note that hedging transactions may not
successfully mitigate losses caused by currency fluctuations. We expect to continue to experience the effect of exchange
rate and currency fluctuations on an annual and quarterly basis.
The majority of our cash and cash equivalents are invested in high grade certificates of deposits with major U.S.,
European and Israeli banks. Generally, cash and cash equivalents and bank deposits may be redeemed and therefore minimal
credit risk exists with respect to them. Nonetheless, deposits with these banks exceed the Federal Deposit Insurance
Corporation (“FDIC”) insurance limits or similar limits in foreign jurisdictions, to the extent such deposits are even insured
in such foreign jurisdictions. While we monitor on a systematic basis the cash and cash equivalent balances in the operating
accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions
with which we deposit our funds fails or is subject to other adverse conditions in the financial or credit markets. To date,
we have experienced no loss of principal or lack of access to our invested cash or cash equivalents; however, we can provide
no assurance that access to our invested cash and cash equivalents will not be affected if the financial institutions that we
hold our cash and cash equivalents fail.
We hold an investment portfolio consisting principally of corporate bonds. We have the ability to hold such
investments until recovery of temporary declines in market value or maturity. Accordingly, as of December 31, 2020, we
believe the losses associated with our investments are temporary and no credit loss was recognized in 2020. However, we
can provide no assurance that we will recover present declines in the market value of our investments.
Interest income and gains and losses from marketable securities, net, were $2.84 million in 2020, $3.64 million in
2019 and $3.66 million in 2018. The decrease in interest income and gains and losses from marketable securities, net, for
2020 as compared to 2019 reflected lower combined cash, bank deposits and marketable securities balances held (mainly
as a result of the acquisition of the Hillcrest Labs business and the technology investment in Immervision during the third
quarter of 2019) and lower yields. The slight decrease in interest income and gains and losses from marketable securities,
net, for 2019 as compared to 2018 reflected lower combined cash, bank deposits and marketable securities balances held,
offset with higher yields.
We are exposed primarily to fluctuations in the level of U.S. interest rates. To the extent that interest rates rise,
fixed interest investments may be adversely impacted, whereas a decline in interest rates may decrease the anticipated
interest income for variable rate investments. We typically do not attempt to reduce or eliminate our market exposures on
our investment securities because the majority of our investments are short-term. We currently do not have any derivative
instruments but may put them in place in the future. Fluctuations in interest rates within our investment portfolio have not
had, and we do not currently anticipate such fluctuations will have, a material effect on our financial position on an annual
or quarterly basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements and Supplementary Data on page F-1.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2020.
There has been no change in our internal control over financial reporting that occurred during our most recent fiscal
quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting.
CEVA, Inc.’s management is responsible for establishing and maintaining adequate internal control over the
company’s financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
CEVA, Inc.’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. There are inherent limitations in the effectiveness of any internal control, including the possibility
of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide
only reasonable assurances with respect to financial statement preparation. Further because of changes in conditions, the
effectiveness of internal controls may vary over time such that the degree of compliance with the policies or procedures
may deteriorate.
Management assessed the effectiveness of CEVA, Inc.’s internal control over financial reporting as of December
31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 Framework) (COSO) in Internal Control-Integrated Framework. Based on its
assessment using those criteria, management believes that CEVA, Inc.’s internal control over financial reporting was
effective as of December 31, 2020.
CEVA, Inc.’s independent registered public accountants audited the financial statements included in this Annual
Report on Form 10-K and have issued a report concurring with management’s assessment of the company’s effective
internal control over financial reporting, which appears in Item 8 of this Annual Report.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding our directors required by this item is incorporated herein by reference to the 2021 Proxy
Statement. Information regarding the members of the Audit Committee, our code of business conduct and ethics, the
identification of the Audit Committee Financial Expert, stockholder nominations of directors and compliance with Section
16(a) of the Securities Exchange Act of 1934 is also incorporated herein by reference to the 2021 Proxy Statement.
The information regarding our executive officers required by this item is contained in Part I of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the 2021 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCK HOLDER MATTERS
The information required by this item is incorporated herein by reference to the 2021 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference to the 2021 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the 2021 Proxy Statement.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of or are included in this Annual Report on Form 10-K:
PART IV
1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019.
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and
2018.
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018.
Notes to the Consolidated Financial Statements.
2. Financial Statement Schedules:
Other financial statement schedules have been omitted since they are either not required or the information is
otherwise included.
3. Exhibits:
The exhibits filed as part of this Annual Report on Form 10-K are listed on the exhibit index immediately preceding
such exhibits, which exhibit index is incorporated herein by reference. Some of these documents have previously been filed
as exhibits with the Securities and Exchange Commission and are being incorporated herein by reference to such earlier
filings. CEVA’s file number under the Securities Exchange Act of 1934 is 000-49842.
Exhibit
Number
3.1(1)
3.2(2)
3.3(3)
3.4(4)
3.5(5)
EXHIBIT INDEX
Description
Amended and Restated Certificate of Incorporation of the Registrant
https://www.sec.gov/Archives/edgar/data/1173489/000089843002002552/dex31.htm
Certificate of Ownership and Merger (merging CEVA, Inc. into ParthusCeva, Inc.)
https://www.sec.gov/Archives/edgar/data/1173489/000119312503090855/dex31.htm
Amended and Restated Bylaws of the Registrant
https://www.sec.gov/Archives/edgar/data/1173489/000143774919021069/ex_161690.htm
Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
https://www.sec.gov/Archives/edgar/data/1173489/000114420405022345/v022227_ex3-1.htm
Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003932/ex_174548.htm
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4.1(6)
4.2(5)
10.1†(7)
10.2† (7)
10.3†(14)
10.4†(7)
10.5†(21)
10.6(1)
10.7†(8)
10.8†(22)
10.9†(8)
10.10†(9)
10.11†(22)
10.12†(23)
10.13†(22)
Specimen of Common Stock Certificate
https://www.sec.gov/Archives/edgar/data/1173489/000092701602003793/dex41.htm
Description of Securities
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003932/ex_174503.htm
CEVA, Inc. 2000 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000136231008001431/c72693exv10w6.htm
CEVA, Inc. 2002 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000136231008001431/c72693exv10w7.htm
CEVA, Inc. 2003 Director Stock Option Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312512117311/d280748dex108.htm
Parthus 2000 Share Option Plan
https://www.sec.gov/Archives/edgar/data/1173489/000136231008001431/c72693exv10w10.htm
CEVA, Inc. Amended and Restated 2002 Employee Stock Purchase Plan
https://www.sec.gov/Archives/edgar/data/1173489/000143774920015023/ex_193528.htm
Form of Indemnification Agreement
https://www.sec.gov/Archives/edgar/data/1173489/000089843002002552/dex1013.htm
Employment Agreement between the Registrant and Gideon Wertheizer dated as of November 1, 2002
https://www.sec.gov/Archives/edgar/data/1173489/000092701603001458/dex1016.txt
Amendment, dated February 18, 2021, to the Employment Agreement between the Registrant and Gideon
Wertheizer dated as of November 1, 2002
https://www.sec.gov/Archives/edgar/data/1173489/000143774921003429/ex_227810.htm
Employment Agreement between the Registrant and Issachar Ohana dated as of November 1, 2002
https://www.sec.gov/Archives/edgar/data/1173489/000092701603001458/dex1018.txt
Personal and Special Employment Agreement between the Registrant and Yaniv Arieli dated as of August 18,
2005
https://www.sec.gov/Archives/edgar/data/1173489/000114420405034579/v028299_ex10-1.htm
Amendment, dated February 18, 2021, to the Employment Agreement between the Registrant and Yaniv Arieli
dated as of August 18, 2005.
https://www.sec.gov/Archives/edgar/data/1173489/000143774921003429/ex_227811.htm
Employment Agreement between the Registrant and Michael Boukaya dated as of April 4, 2019.
https://www.sec.gov/Archives/edgar/data/1173489/000143774919006817/ex_140003.htm
Amendment, dated February 18, 2021, to the Employment Agreement between the Registrant and Michael
Boukaya dated as of April 4, 2019.
https://www.sec.gov/Archives/edgar/data/1173489/000143774921003429/ex_227812.htm
10.14†(10)
Form of Nonstatutory Stock Option Agreement under the CEVA, Inc. 2002 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000114420406031683/v048775_ex10-22.htm
10.15†(10)
Form of Israeli Stock Option Agreement under the CEVA, Inc. 2002 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000114420406031683/v048775_ex10-23.htm
10.16†(10)
Form of Nonstatutory Stock Option Agreement under the CEVA, Inc. 2000 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000114420406031683/v048775_ex10-24.htm
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10.17†(10)
Form of Israeli Stock Option Agreement under the CEVA, Inc. 2000 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000114420406031683/v048775_ex10-25.htm
10.18†(10)
10.19†(11)
10.20†(11)
10.21†(12)
10.22†(13)
10.23†(21)
10.24†(15)
10.25†(15)
10.26†(15)
10.27†(15)
10.28†(15)
10.29†(15)
Form of Nonstatutory Stock Option Agreement under the CEVA, Inc. 2003 Director Stock Option Plan
https://www.sec.gov/Archives/edgar/data/1173489/000114420406031683/v048775_ex10-26.htm
Form of Nonstatutory Stock Option Agreement for Directors under the CEVA, Inc. 2000 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000095013407017526/f32667exv10w24.htm
Yaniv Arieli’s Amended and Restated Nonstatutory Stock Option Agreement under the CEVA, Inc. 2002 Stock
Incentive Plan, dated as of August 3, 2007
https://www.sec.gov/Archives/edgar/data/1173489/000095013407017526/f32667exv10w25.htm
Amendment, dated July 22, 2003, to the Employment Agreement by and between Issachar Ohana and CEVA,
Inc., dated November 1, 2002
https://www.sec.gov/Archives/edgar/data/1173489/000095013407023511/f35285exv10w27.htm
Amendment, effective as of November 1, 2007, to the Employment Agreement by and between Issachar Ohana
and CEVA, Inc., dated November 1, 2002 and as amended on July 22, 2003
https://www.sec.gov/Archives/edgar/data/1173489/000095013407023138/f35270exv99w1.htm
CEVA, Inc. Amended and Restated 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000143774920015023/ex_193527.htm
Form of Stock Appreciation Right Agreement under the CEVA, Inc. 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1026.htm
Form of Israeli Stock Appreciation Right Agreement under the CEVA, Inc. 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1027.htm
Form of Israeli Restricted Stock Unit Agreement for employees under the CEVA, Inc. 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1028.htm
Form of Restricted Stock Unit Agreement for employees under the CEVA, Inc. 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1029.htm
Form of Restricted Stock Unit Agreement for non-employee directors under the CEVA, Inc. 2011 Stock
Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1030.htm
Form of Restricted Stock Unit Agreement for Israeli non-employee directors under the CEVA, Inc. 2011 Stock
Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1031.htm
10.30†(15)
Israeli Sub-plan under the CEVA, Inc. 2011 Stock Incentive Plan
https://www.sec.gov/Archives/edgar/data/1173489/000119312516501526/d127989dex1032.htm
10.31†(16)
2019 Incentive Plan for Issachar Ohana, EVP Worldwide Sales, effective as of January 1, 2019 (portions of this
exhibit is redacted). https://www.sec.gov/Archives/edgar/data/1173489/000143774919002457/ex_134614.htm
10.32†(17)
2019 Executive Bonus Plan for Gideon Wertheizer and Yaniv Arieli, effective as of January 1, 2019 (portions of
the description of the 2019 Executive Bonus Plan are redacted).
https://www.sec.gov/Archives/edgar/data/1173489/000143774919002457/ceva20190211b_8k.htm
sf-4200376
54
10.33†(19)
2020 Incentive Plan for Issachar Ohana, EVP Worldwide Sales, effective as of January 1, 2020 (portions of this
exhibit is redacted). https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ex_173709.htm
10.34†(19)
2020 Executive Bonus Plan for Gideon Wertheizer and Yaniv Arieli, effective as of January 1, 2020 (portions of
the description of the 2020 Executive Bonus Plan are redacted).
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ceva20200221_8k.htm
10.35†(22)
2021 Incentive Plan for Issachar Ohana, EVP Worldwide Sales, effective as of January 1, 2021 (portions of this
exhibit is redacted). https://www.sec.gov/Archives/edgar/data/1173489/000143774921003429/ex_227805.htm
10.36†(19)
10.37†(19)
10.38†(19)
10.39†(19)
10.40†(20)
21.1*
23.1*
24.1*
31.1*
31.2*
32*
Form of Short-Term Executive PSUs for Israeli Executive Officers (portions of this exhibit is redacted).
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ex_173737.htm
Form of Short-Term Executive PSUs for U.S.-based Executive Officers (portions of this exhibit is redacted).
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ex_173738.htm
Form of Long-Term Executive PSUs for Israeli Executive Officers.
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ex_173739.htm
Form of Long-Term Executive PSUs for U.S.-based Executive Officers.
https://www.sec.gov/Archives/edgar/data/1173489/000143774920003388/ex_173740.htm
2019 PSU Award for Gideon Wertheizer
https://www.sec.gov/Archives/edgar/data/1173489/000143774919009223/ceva20190508_8k.htm
List of Subsidiaries
Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
Power of Attorney (See signature page of this Annual Report on Form 10-K)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Filed as an exhibit to CEVA’s registration statement on Form 10, as amended, initially filed with the Commission on June 3, 2002
(registration number 000-49842), and incorporated herein by reference.
(2) Filed as an exhibit to CEVA’s Report on Form 8-K, filed with the Commission on December 8, 2003, and incorporated hereby by
reference.
(3) Filed as an exhibit to CEVA’s Current Report on Form 8-K, filed with the Commission on October 31, 2019, and incorporated
hereby by reference.
sf-4200376
55
(4) Filed as an exhibit to CEVA’s Report on Form 8-K, filed with the Commission on July 22, 2005, and incorporated hereby by
reference.
(5) Filed as an exhibit to CEVA’s 2019 Annual Report on Form 10-K, filed with the Commission on February 28, 2020, and
incorporated hereby by reference.
(6) Filed as an exhibit to CEVA’s registration statement on Form S-1, as amended, initially filed with the Commission on July 30, 2002
(registration number 333-97353), and incorporated herein by reference.
(7) Filed as an exhibit to CEVA’s 2007 Annual Report on Form 10-K, filed with the Commission on March 14, 2008, and incorporated
hereby by reference.
(8) Filed as an exhibit to CEVA’s 2002 Annual Report on Form 10-K, filed with the Commission on March 28, 2003, and incorporated
hereby by reference.
(9) Filed as an exhibit to CEVA’s Quarterly Report on Form 10-Q, filed with the Commission on November 9, 2005, and incorporated
hereby by reference.
(10) Filed as an exhibit to CEVA’s Quarterly Report on Form 10-Q, filed with the Commission on August 9, 2006, and incorporated
hereby by reference.
(11)Filed as an exhibit of the same number to CEVA’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on August 9, 2007, and incorporated hereby by reference.
(12)Filed as Exhibit 10.27 to CEVA’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on
November 9, 2007, and incorporated hereby by reference.
(13) Filed as Exhibit 99.1 to CEVA’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November
7, 2007, and incorporated hereby by reference.
(14)Filed as Exhibit 10.8 to CEVA’s Annual Report on Form 10-K filed with the Commission on March 15, 2012, and incorporated
hereby by reference.
(15) Filed as an exhibit to CEVA’s Annual Report on Form 10-K filed with the Commission on March 11, 2016, and incorporated
hereby by reference.
(16) Filed as an exhibit to CEVA’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 2,
2018, and incorporated hereby by reference.
(17) Filed as an exhibit to CEVA’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 13,
2019, and incorporated hereby by reference.
(18) Filed as an exhibit to CEVA’s Annual Report on Form 10-K filed with the Commission on March 1, 2018, and incorporated hereby
by reference.
(19) Filed as an exhibit to CEVA’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 24,
2020, and incorporated hereby by reference.
(20) Filed as an exhibit to CEVA’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2019,
and incorporated hereby by reference.
(21) Filed as an exhibit to CEVA’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 10,
2020, and incorporated hereby by reference.
(22) Filed as an exhibit to CEVA’s Report on Form 8-K, filed with the Commission on February 18, 2021, and incorporated hereby by
reference.
(23) Filed as an exhibit to CEVA’s Report on Form 8-K, filed with the Commission on April 9, 2019, and incorporated hereby by
reference.
† Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
* Filed herewith.
ITEM 16. FORM 10-K SUMMARY
The Company has elected not to include summary information.
sf-4200376
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CEVA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income (loss)
Consolidated Statements of Comprehensive Income (Loss)
Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-6
F-7
F-8
F-9
F-11
sf-4200376
F-1
CEVA, INC.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CEVA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CEVA, Inc. (the Company) as of December 31, 2020 and
2019, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity and cash flows
for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated
financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Description of the Matter
Revenue Recognition
As described in Note 1 to the consolidated financial statements, the Company generates a significant
portion of its revenues form licensing intellectual properties and related services. Most of the Company's
contracts with customers contain multiple goods or services which are accounted for as separate
performance obligation, if they are distinct. The transaction price is allocated to the separate performance
obligations on a relative standalone selling price basis. Standalone selling prices of intellectual properties
licenses are typically estimated using the residual approach. Standalone selling prices of related services
are typically estimated based on observable transactions when those services are sold on a standalone basis.
Auditing the identification of performance obligations in intellectual properties license contracts may
require certain judgments as it relates to the evaluation of the contractual terms of the arrangement. For
sf-4200376
F-2
CEVA, INC.
example, there may be nonstandard terms and conditions that require judgment to determine the distinct
performance obligations. Auditing the allocation of the transaction price to performance obligations
requires significant judgment in determining the use of the residual approach to estimate the standalone
selling prices of intellectual properties licensing is appropriate.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated design and tested the operating effectiveness of internal controls
related to the identification of distinct performance obligations, the determination of the standalone selling
prices, including the Company’s assessment of the appropriateness of the residual approach method.
Among the substantive procedures we performed to test the identification and determination of distinct
performance obligations, for a sample of contracts, we read the executed contract to understand and
evaluated management’s identification of significant terms for completeness, including the identification
of distinct performance obligations.
To test management’s determination of standalone selling price for each performance obligation, we
performed procedures to evaluate the methodology applied, tested the accuracy of the underlying data and
calculations and the application of that methodology to the sample of contracts. Our testing of the
application of the residual method to estimate standalone selling prices of intellectual properties license
included analysis of the variability of actual intellectual properties license pricing during the year.
We also tested the mathematical accuracy of management’s calculations of revenue in the consolidated
financial statements. Finally, we assessed the appropriateness of the related disclosures in the consolidated
financial statements.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company's auditor since 1999.
Tel-Aviv, Israel
March 1, 2021
sf-4200376
F-3
CEVA, INC.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CEVA, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited CEVA, Inc.'s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, CEVA, Inc. (the Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related consolidated statements
of income (loss), comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2020 and the related notes, and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
sf-4200376
F-4
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
CEVA, INC.
/s/KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
Tel Aviv, Israel
March 1, 2021
sf-4200376
F-5
CEVA, INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term bank deposits
Marketable securities
Trade receivables (net of allowance for credit losses of $327 and $300 at December
31, 2019 and December 31, 2020, respectively)
Prepaid expenses and other current assets
Total current assets
Long-term assets:
Bank deposits
Severance pay fund
Deferred tax assets, net
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Investments in non-marketable equity securities
Other long-term assets
Total long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
Deferred revenues
Accrued expenses and other payables
Accrued payroll and related benefits
Operating lease liabilities
Total current liabilities
Long-term liabilities:
Accrued severance pay
Operating lease liabilities
Other accrued liabilities
Total long-term liabilities
Stockholders’ equity :
Preferred stock:
December 31,
2019
2020
$ 22,803
56,915
64,867
28,307
5,660
178,552
5,368
9,881
10,605
7,879
11,066
51,070
13,424
936
8,240
118,469
$ 297,021
$
701
3,642
3,748
15,894
2,393
26,378
10,551
8,273
662
19,486
$ 21,143
20,233
88,754
31,224
6,205
167,559
29,529
10,535
10,826
7,586
9,052
51,070
10,836
936
9,023
139,393
$ 306,952
$
894
2,434
3,843
18,040
2,969
28,180
11,226
5,772
885
17,883
$0.001 par value: 5,000,000 shares authorized; none issued and outstanding
—
—
Common stock:
$0.001 par value: 45,000,000 shares authorized; 23,595,160 shares issued at
December 31, 2019 and 2020; 21,839,369 and 22,260,917 shares outstanding
at December 31, 2019 and 2020, respectively
Additional paid in-capital
Treasury stock at cost (1,755,791 and 1,334,243 shares of common stock at
December 31, 2019 and 2020, respectively)
Accumulated other comprehensive income
sf-4200376
F-6
22
228,005
22
233,172
(39,390)
94
(30,133)
478
CEVA, INC.
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2019
62,426
251,157
$ 297,021
2020
57,350
260,889
$ 306,952
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-7
CEVA, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(U.S. dollars in thousands, except per share data)
Year Ended December 31,
2019
2020
2018
Revenues:
Licensing and related revenue
Royalties
Total revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development, net *)
Sales and marketing *)
General and administrative *)
Amortization of intangible assets
Total operating expenses
Operating loss
Financial income, net
Revaluation of investment in non-marketable equity securities
Income before taxes on income
Taxes on income
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Weighted average shares used to compute net income (loss) per share (in
thousands):
Basic
Diluted
$ 40,446 $ 47,890
39,262
87,152
10,106
77,046
37,431
77,877
7,951
69,926
$ 52,513
47,813
100,326
10,749
89,577
47,755
12,161
10,354
901
71,171
(1,245)
3,418
(870)
1,303
729
574 $
52,843
12,363
11,841
1,923
78,970
(1,924)
3,291
—
1,367
1,339
28
$
62,010
11,907
14,116
2,307
90,340
(763)
3,284
—
2,521
4,900
(2,379)
0.03 $
0.03 $
0.00
0.00
$
$
(0.11)
(0.11)
$
$
$
22,034
22,503
21,932
22,323
22,107
22,107
*) Not including amortization of technology shown separately.
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-8
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in thousands)
CEVA, INC.
Year Ended December 31,
2019
2020
2018
Net income (loss):
Other comprehensive income (loss) before tax:
Available-for-sale securities:
Changes in unrealized gains (losses)
Reclassification adjustments included in net income (loss)
Net change
Cash flow hedges:
Changes in unrealized gains (losses)
Reclassification adjustments included in net income (loss)
Net change
Other comprehensive income (loss) before tax
Income tax expense (benefit) related to components of other comprehensive
income (loss)
Other comprehensive income (loss), net of taxes
Comprehensive income (loss)
$
574 $
28
$
(2,379)
(612)
67
(545)
(431)
354
(77)
(622)
1,245
28
1,273
440
(307)
133
1,406
548
6
554
632
(688)
(56)
498
(94)
(528)
46 $
198
1,208
1,236
$
114
384
(1,995)
$
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-9
CEVA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(U.S. dollars in thousands, except share data)
Balance as of January 1, 2018
Net income
Other comprehensive loss
Equity-based compensation
Purchase of treasury stock
Issuance of treasury stock upon
exercise of stock-based awards
Cumulative effect of adoption of new
accounting standard
Balance as of December 31, 2018
Net income
Other comprehensive income
Equity-based compensation
Purchase of treasury stock
Issuance of treasury stock upon
exercise of stock-based awards
Balance as of December 31, 2019
Net loss
Other comprehensive income
Equity-based compensation
Purchase of treasury stock
Issuance of treasury stock upon
exercise of stock-based awards
Balance as of December 31, 2020
Common Stock
Number of
shares
$
outstanding Amount
22,064,007
—
—
—
(655,876)
Additional
paid-in
capital
Treasury
stock
Accumulated
other
comprehensive
income (loss)
22 $ 217,417
—
—
—
—
10,367
—
—
—
$
(26,056) $
—
—
—
(20,008)
Retained
earnings
(586) $ 53,873
574
—
—
(528)
—
—
—
—
Total
stockholders’
equity
$ 244,670
574
(528)
10,367
(20,008)
379,729
—
(4,534)
6,932
—
(149)
2,249
$
$
—
21,787,860
—
—
—
(355,180)
406,689
21,839,369
—
—
—
(202,392)
623,940
22,260,917
$
$
—
—
22 $ 223,250
—
—
—
—
10,718
—
—
—
—
(39,132) $
—
—
—
(9,113)
—
8,555
(1,114) $ 62,853
28
—
—
—
1,208
—
—
—
$
(5,963)
—
22 $ 228,005
—
—
—
—
13,636
—
—
—
8,855
(39,390) $
—
—
—
(4,780)
—
(455)
$ 62,426
(2,379)
—
—
—
94
—
384
—
—
(8,469)
—
22 $ 233,172
$
14,037
(30,133) $
—
(2,697)
478 (*) $ 57,350
8,555
$ 245,879
28
1,208
10,718
(9,113)
2,437
$ 251,157
(2,379)
384
13,636
(4,780)
2,871
$ 260,889
(*) Accumulated unrealized gain from available-for-sale securities, net of taxes of $126
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-10
CEVA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
Year ended December 31,
2019
2018
2020
Cash flows from operating activities:
Net income (loss)
Adjustments required to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation
Amortization of intangible assets
Equity-based compensation
Realized loss, net on sale of available-for-sale marketable securities
Amortization of premiums on available-for-sale marketable securities
Unrealized foreign exchange (gain) loss, net
Revaluation of investment in non-marketable equity securities
Changes in operating assets and liabilities:
Trade receivables, net
Prepaid expenses and other assets
Operating lease right-of-use assets
Accrued interest on bank deposits
Deferred taxes, net
Trade payables
Deferred revenues
Accrued expenses and other payables
Accrued payroll and related benefits
Operating lease liability
Income taxes payable
Accrued severance pay, net
Cash flows from investing activities:
Net cash provided by operating activities
Acquisition of business combination
Purchase of property and equipment
Purchase of intangible assets
Investment in bank deposits
Proceeds from bank deposits
Investment in available-for-sale marketable securities
Proceeds from maturity of available-for-sale marketable securities
Proceeds from sale of available-for-sale marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Purchase of treasury stock
Payment of contingent consideration liability
Proceeds from exercise of stock-based awards
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
$
574 $
28 $ (2,379)
3,104
2,165
2,915
1,242
3,233
2,588
10,367 10,718 13,636
6
444
(591)
—
67
773
155
870
28
554
249
—
(463)
(3,855)
—
(557)
(2,187)
226
(806)
(493)
(527)
—
96
215
8,612
(2,151)
(4,170)
(1,281)
(161)
(3,594)
53
85
(131)
3,056
1,166
(53)
9
(2,917)
(559)
2,014
1,186
(335)
186
(1,208)
133
1,803
(2,183)
143
(37)
9,674 15,163
— (11,000)
(3,461)
(7,364)
—
(2,935)
(3,319)
(1,960)
—
(21,596) (39,346) (43,893)
32,892 45,435 55,393
(19,666)
10,122
13,354
9,827
(56,011)
(27,184)
21,956
3,888
36,589
10,272
(2,443) (15,218)
(20,008)
—
2,249
(17,759)
(159)
521
(4,780)
(204)
2,871
(2,113)
508
(1,660)
21,739 22,260 22,803
$ 22,260 $ 22,803 $ 21,143
(9,113)
—
2,437
(6,676)
(12)
543
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
CEVA, INC.
(U.S. dollars in thousands)
Year ended December 31,
2019
2020
2018
Supplemental information of cash-flows activities:
Cash paid during the year for:
Income and withholding taxes
Non-cash transactions:
$ 4,294 $ 5,063 $ 4,727
Cumulative effect of adoption of new accounting standard
Property and equipment purchases incurred but unpaid at period end
Intangible assets purchased but unpaid at period end
Right-of-use assets obtained in the exchange for operating lease liabilities
$ 8,555 $ — $ —
5
$
14 $
750 $
$
—
— $ 2,493 $ 6,787
$
21 $
— $
The accompanying notes are an integral part of the consolidated financial statements.
sf-4200376
F-12
CEVA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
CEVA, Inc. (“CEVA” or the “Company”) was incorporated in Delaware on November 22, 1999. The Company
was formed through the combination of Parthus Technologies plc (“Parthus”) and the digital signal processor (DSP) cores
licensing business and operations of DSP Group, Inc. in November 2002. The Company had no business or operations prior
to the combination.
CEVA licenses a family of signal processing IPs in two types of categories: wireless connectivity and smart sensing.
These products include comprehensive platforms comprised of specialized DSPs coupled with an AI and other types of
accelerators targeted for low power workloads, including 5G baseband processing, intelligent vision, voice recognition,
physical layer processing and sensor fusion. CEVA also offers high performance DSPs targeted for 5G RAN and Open
RAN, Wi-Fi enterprise and residential access points, satellite communication and other multi-gigabit communications. Our
portfolio also includes a wide range of application software optimized for our processors, including voice front-end
processing and speech recognition, imaging and computer vision and sensor fusion. For sensor fusion, our Hillcrest Labs
sensor processing technologies provide a broad range of sensor fusion software and inertial measurement unit (“IMU”)
solutions for AR/VR, robotics, remote controls and IoT. For wireless IoT, the Company offers the industry’s most widely
adopted IPs for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax) and NB-IoT.
CEVA’s technologies are licensed to leading semiconductor and original equipment manufacturer (OEM)
companies. These companies design, manufacture, market and sell application-specific integrated circuits (“ASICs”) and
application-specific standard products (“ASSPs”) based on CEVA’s technology to wireless, consumer electronics and
automotive companies for incorporation into a wide variety of end products.
CEVA is a sustainable and environmentally conscious company, adhering its Code of Business Conduct and Ethics.
As such, it emphasizes and focuses on environmental preservation, recycling, the welfare of our employees and privacy –
which it promotes on a corporate level. CEVA, is committed to social responsibility, values of preservation and
consciousness towards these purposes.
Acquisitions:
In July 2019, the Company acquired the Hillcrest Labs business from InterDigital, Inc. (“InterDigital”). Hillcrest
Labs is a leading global supplier of software and components for sensor processing in consumer and IoT devices. Under the
terms of the agreement, the Company agreed to pay an aggregate of $11,204 to purchase the Hillcrest Labs business, as well
as non-exclusive rights to certain Hillcrest Labs’ patents retained by InterDigital, with $10,000 paid at closing, $204 of
which is a contingent consideration that was fully paid during the first quarter of 2020, and the remainder of $1,000 held in
escrow to satisfy indemnification claims, if any.
In addition, the Company incurred acquisition-related expenses associated with the Hillcrest Labs transaction in a
total amount of $462, which were included in general and administrative expenses for the year ended December 31, 2019.
Acquisition-related costs included legal, accounting and consulting fees, and other external costs directly related to the
acquisition.
Goodwill generated from this business combination is attributed to synergies between the Company's and Hillcrest
Lab's respective products and services.
The results of Hillcrest Labs’ operations have been included in the consolidated financial statements since July 19,
2019. Pro forma results of operations related to this acquisition have not been prepared because they are not material to the
Company's consolidated statement of income (loss).
sf-4200376
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
The purchase price allocation for the acquisition has been determined as follows:
Tangible assets (including inventory, property and equipment
and other)
Intangible assets:
Developed technologies
Customer relationships
Customer backlog
Goodwill
Total assets
$
681
2,475
3,518
72
4,458
$ 11,204
The acquisition of the Hillcrest Labs business has been accounted in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 805, “Business Combinations” (“ASC 805”).
Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets
based on their fair values on the closing date.
In August 2019, the Company entered into a strategic agreement with a private company, Immervision, Inc.
(“Immervision”), whereby the Company made a strategic technology investment for a total consideration of $10,000 to
secure exclusive licensing rights to Immervision’s advanced portfolio of patented wide-angle image processing
technology and software. The Company considered this transaction as an asset acquisition. As a result, the estimated fair
value of the assets acquired have been included in the accompanying balance sheet from the date of acquisition.
The consideration for the investment has been determined as follows:
Prepaid expenses
Intangible assets:
Core technologies
Total assets
$ 2,937
7,063
$ 10,000
The intangible assets are amortized based on the pattern upon which the economic benefits of the intangible assets
are to be utilized.
Basis of presentation:
The consolidated financial statements have been prepared according to U.S Generally Accepted Accounting
Principles (“U.S. GAAP”).
Recently Adopted Accounting Pronouncements:
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial
Instruments – Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires that expected credit losses relating
to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an
allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt
securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized
credit losses if fair value increases. The adoption by the Company of the new guidance did not have a material impact on
its consolidated financial statements.
sf-4200376
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for
Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the
goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a
reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the
reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also
eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill
impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the
qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason
for the change in accounting principle should be disclosed upon transition. The Company adopted ASU 2017-04 as of
January 1, 2020. The adoption by the Company of the new guidance did not have a material impact on its consolidated
financial statements.
Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and
assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic has created, and may
continue to create, significant uncertainty in macroeconomic conditions, and the extent of its impact on the Company’s
operational and financial performance will depend on certain developments, including the duration and spread of the
outbreak and the impact on the Company’s customers and its sales cycles. The Company considered the impact of COVID-
19 on the estimates and assumptions and determined that there were no material adverse impacts on the consolidated
financial statements for the period ended December 31, 2020. As events continue to evolve and additional information
becomes available, the Company’s estimates and assumptions may change materially in future periods.
Financial statements in U.S. dollars:
A majority of the revenues of the Company and its subsidiaries is generated in U.S. dollars (“dollars”). In addition,
a portion of the Company and its subsidiaries’ costs are incurred in dollars. The Company’s management has determined
that the dollar is the primary currency of the economic environment in which the Company and its subsidiaries principally
operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 830,
“Foreign Currency Matters.” All transaction gains and losses from remeasurement of monetary balance sheet items are
reflected in the consolidated statements of income (loss) as financial income or expenses, as appropriate, which is included
in “financial income, net.” The foreign exchange losses arose principally on the EURO and the NIS monetary balance sheet
items as a result of the currency fluctuations of the EURO and the NIS against the dollar.
Principles of consolidation:
The consolidated financial statements incorporate the financial statements of the Company and all of its subsidiaries.
All inter-company balances and transactions have been eliminated on consolidation.
sf-4200376
F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Cash equivalents:
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original
maturities of three months or less from the date acquired.
Short-term bank deposits:
Short-term bank deposits are deposits with maturities of more than three months but less than one year from the
balance sheet date. The deposits are presented at their cost, including accrued interest. The deposits bear interest annually
at an average rate of 2.16%, 2.64% and 2.53% during 2018, 2019 and 2020, respectively.
Marketable securities:
Marketable securities consist mainly of corporate bonds. The Company determines the appropriate classification of
marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance
with FASB ASC No. 320 “Investments- Debt and Equity Securities,” the Company classifies marketable securities as
available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in
accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains
and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income,
net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to
maturity, both of which, together with interest, are included in financial income, net. The Company has classified all
marketable securities as short-term, even though the stated maturity date may be one year or more beyond the current
balance sheet date, because it is probable that the Company will sell these securities prior to maturity to meet liquidity needs
or as part of risk versus reward objectives.
The Company determines realized gains or losses on sale of marketable securities on a specific identification
method, and records such gains or losses as interest and other income (expense), net.
Starting on January 1, 2020, as a result of the adoption of ASC 326, available-for-sale debt securities with an
amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is
caused by expected credit losses. Expected credit losses on available-for-sale debt securities are recognized in financial
income, net, on the Company’s consolidated statements of income (loss), and any remaining unrealized losses, net of taxes,
are included in accumulated other comprehensive income (loss) in stockholders' equity. The amount of credit losses recorded
for the twelve months ended December 31, 2020 was not material.
Prior to 2020, the Company recognized an impairment charge when a decline in the fair value of its investments in
debt securities below the cost basis of such securities was considered to be other-than-temporary. Factors considered in
making such a determination include the duration and severity of the impairment, the reason for the decline in value and the
potential recovery period. For securities that were deemed other-than-temporarily impaired (“OTTI”), the amount of
impairment was recognized in the statement of income (loss) and was limited to the amount related to credit losses, while
impairment related to other factors was recognized in other comprehensive income (loss). The Company did not recognize
OTTI on its marketable securities in 2018, and 2019.
Long-term bank deposits:
Long-term bank deposits are deposits with maturities of more than one year as of the balance sheet date. The
deposits presented at their cost, including accrued interest. The deposits bear interest annually at an average rate of 2.57%,
2.94% and 1.32% during 2018, 2019 and 2020, respectively.
sf-4200376
F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Trade receivables and allowances:
Trade receivables are recorded and carried at the original invoiced amount less an allowance for any potential
uncollectible amounts. The Company makes estimates of expected credit losses for the allowance for doubtful accounts
and allowance for unbilled receivables based upon its assessment of various factors, including historical experience, the
age of the trade receivable balances, credit quality of its customers, current economic conditions, reasonable and
supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from
customers. The estimated credit loss allowance is recorded as general and administrative expenses on the Company’s
consolidated statements of income (loss).
Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, at the following annual rates:
Computers, software and equipment
Office furniture and equipment
Leasehold improvements
%
10-33
7-33
10-20
(the shorter of the expected
lease term or useful
economic life)
The Company’s long-lived assets are reviewed for impairment in accordance with FASB ASC No. 360-10-35,
“Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of the carrying amount of an asset to be held and used is
measured by a comparison of its carrying amount to the future undiscounted cash flows expected to be generated by such
asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of such asset exceeds its fair value. In determining the fair value of long-lived assets for purposes of
measuring impairment, the Company's assumptions include those that market participants would consider in valuations of
similar assets.
An asset to be disposed is reported at the lower of its carrying amount or fair value less selling costs. No impairment
was recorded in 2018, 2019 and 2020.
Leases:
Effective as of January 1, 2019, the Company adopted Topic 842, which requires the recognition of lease assets and
lease liabilities by lessees for leases classified as operating leases. The Company has adopted Topic 842 using the modified
retrospective transition approach by applying the new standard to all leases existing on the date of initial application. Results
and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed
the Company to carryforward the historical lease classification, the Company’s assessment on whether a contract was or
contained a lease, and initial direct costs for any leases that existed prior to January 1, 2019.
As a result of the adoption of Topic 842 on January 1, 2019, the Company recorded both operating lease right-of-
use (“ROU”) assets of $9,785 and operating lease liabilities of $9,498. The ROU assets include adjustments for prepayments
sf-4200376
F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
in the amount of $287. The adoption did not impact the Company’s beginning retained earnings, or its prior year
consolidated statements of income (loss) and statements of cash flows.
The Company determines if an arrangement is a lease at inception. The Company’s assessment is based on: (1)
whether the contract includes an identified asset, (2) whether the Company obtains substantially all of the economic benefits
from the use of the asset throughout the period of use, and (3) whether the Company has the right to direct how and for what
purpose the identified asset is used throughout the period of use.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one
of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains
an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining
useful life of the asset, the present value of the lease payments equals or exceeds substantially all of the fair value of the
asset, or the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the
end of lease term. A lease is classified as an operating lease if it does not meet any one of these criteria. Since all of the
Company’s lease contracts do not meet any of the criteria above, the Company concluded that all of its lease contracts
should be classified as operation leases.
ROU assets and liabilities are recognized on the commencement date based on the present value of remaining lease
payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at
the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company uses its
incremental borrowing rate based on information available on the commencement date in determining the present value of
lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any
lease incentives received. All ROU assets are reviewed for impairment. The lease terms may include options to extend or
terminate the lease when it is reasonably certain that the Company will exercise such options.
The Company elected to not recognize a lease liability and a ROU asset for lease with a term of twelve months or
less.
Goodwill:
Goodwill is carried at cost and is not amortized but rather is tested for impairment at least annually or between
annual tests in certain circumstances. The Company conducts its annual test of impairment for goodwill on October 1st of
each year.
The Company operates in one operating segment and this segment comprises only one reporting unit.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the
quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of
impairment, no further impairment testing is required. If the Company elects not to use this option, or if the Company
determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the
Company prepares a quantitative analysis to determine whether the carrying value of a reporting unit exceeds its estimated
fair value. If the carrying value of a reporting unit exceeds its estimated fair value, the Company recognizes an impairment
of goodwill for the amount of this excess, in accordance with the guidance in FASB Accounting Standards Update ("ASU")
No. 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which the
adopted as of January 1, 2020. Prior to the adoption of ASU 2017-04, if the Company elects not to use the qualitative
analysis the two-step impairment test is performed. For each of the three years in the period ended December 31, 2020, no
impairment of goodwill has been recorded.
sf-4200376
F-18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Intangible assets, net:
Acquired intangible assets with definite lives are amortized over their estimated useful lives. The Company
amortizes intangible assets on a straight-line basis with definite lives over periods ranging from half a year to seven and a
half years.
Intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison
of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If such assets are considered
to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair
market value. The Company did not record any impairments during the years ended December 31, 2018, 2019 and 2020.
Investments in non-marketable equity securities:
The Company's non-marketable equity securities are investments in privately held companies without readily
determinable market values.
For the Company’s equity investment in private company equity securities which do not have readily determinable
fair values, the Company has elected the measurement alternative defined as cost, less impairment, plus or minus
adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the
same issuer. The investment is reviewed periodically to determine if its value has been impaired and adjustments are
recorded as necessary.
During the years ended December 31, 2020 and 2019, no impairment loss was identified. During the year ended
December 31, 2018, the Company recorded a loss of $870 related to revaluation of its investment in a private company
based on observable price changes.
Revenue recognition:
Effective as of January 1, 2018, the Company has followed the provisions of ASC Topic 606, Revenue from
Contracts with Customers (“ASC 606”). The guidance provides a unified model to determine how revenue is recognized.
See Note 2 for further details.
The following is a description of principal activities from which the Company generates revenue. Revenues are
recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the
consideration that the Company expects to receive in exchange for those goods or services.
The Company determines revenue recognition through the following steps:
identification of the contract with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company enters into contracts that can include various combinations of products and services, as detailed
below, which are generally capable of being distinct and accounted for as separate performance obligations.
sf-4200376
F-19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
The Company generates its revenues from (1) licensing intellectual properties, which in certain circumstances are
modified for customer-specific requirements, (2) royalty revenues, and (3) other revenues, which include revenues from
support, training and sale of development systems and chips, which are included in licensing and related revenue in the
accompanying consolidated statements of income (loss).
The Company accounts for its IP license revenues and related services, which provide the Company's customers
with rights to use the Company's IP, in accordance with ASC 606. A license may be perpetual or time limited in its
application. In accordance with ASC 606, the Company will recognize revenue from IP license at the time of delivery when
the customer accepts control of the IP, as the IP is functional without professional services, updates and technical support.
The Company has concluded that its IP license is distinct as the customer can benefit from the software on its own.
Most of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the
Company accounts for individual performance obligations separately, if they are distinct. The transaction price is allocated
to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of IP license
are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on
observable transactions when these services are sold on a standalone basis.
When contracts involve a significant financing component, the Company adjusts the promised amount of
consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract
(either explicitly or implicitly) provide the customer with a significant benefit of financing, unless the financing period is
under one year and only after the products or services were provided, which is a practical expediency permitted under ASC
606.
Revenues from contracts that involve significant customization of the Company’s IP to customer-specific
specifications are performance obligations the Company generally accounts for as performance obligations satisfied over
time. The Company’s performance obligation does not create an asset with alternative use, and the Company has an
enforceable right to payment. The Company recognizes revenue on such contracts using cost based input methods, which
recognize revenue and gross profit as work is performed based on a ratio between actual costs incurred compared to the
total estimated costs for the contract. Provisions for estimated losses on uncompleted contracts are made during the period
in which such losses are first determined, in the amount of the estimated loss on the entire contract.
Revenues that are derived from the sale of a licensee’s products that incorporate the Company’s IP are classified as
royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating the
Company’s IP occurs. Royalties are calculated either as a percentage of the revenues received by the Company’s licensees
on sales of products incorporating the Company’s IP or on a per unit basis, as specified in the agreements with the licensees.
For a majority of the Company’s royalty revenues, the Company receives the actual sales data from its customers after the
quarter ends and accounts for it as unbilled receivables. When the Company does not receive actual sales data from the
customer prior to the finalization of its financial statements, royalty revenues are recognized based on the Company’s
estimation of the customer’s sales during the quarter.
In addition to license fees, contracts with customers generally contain an agreement to provide for training and post
contract support, which consists of telephone or e-mail support, correction of errors (bug fixing) and unspecified updates
and upgrades. Fees for post contract support, which takes place after delivery to the customer, are specified in the contract
and are generally mandatory for the first year. After the mandatory period, the customer may extend the support agreement
on similar terms on an annual basis. The Company considers the post contract support performance obligation as a distinct
performance obligation that is satisfied over time, and as such, it recognizes revenue for post contract support on a straight-
line basis over the period for which technical support is contractually agreed to be provided to the licensee, typically twelve
months.
sf-4200376
F-20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Revenues from the sale of development systems and chips are recognized when control of the promised goods or
services are transferred to the customers.
Deferred revenues, which represent a contract liability, include unearned amounts received under license
agreements, unearned technical support and amounts paid by customers not yet recognized as revenues.
The Company capitalizes sales commission as costs of obtaining a contract when they are incremental and, if they
are expected to be recovered, amortized in a manner consistent with the pattern of transfer of the good or service to which
the asset relates. If the expected amortization period is one year or less, the commission fee is expensed when incurred.
Cost of revenue:
Cost of revenue includes the costs of products, services and royalty expense payments to the Israeli Innovation
Authority of the Ministry of Economy and Industry in Israel (the “IIA“) (refer to Note 15 for further details). Cost of product
revenue includes materials, subcontractors, amortization of acquired assets (NB-IoT and Immervision technologies) and the
portion of development costs associated with product development arrangements. Cost of service revenue includes salary
and related costs for personnel engaged in services, training and customer support, and travel, office expenses and other
support costs.
Income taxes:
The Company recognizes income taxes under the liability method. It recognizes deferred income tax assets and
liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of
assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to
taxable income for the years in which differences are expected to reverse. The effect of a change in tax rates on deferred
income taxes is recognized in the statements of income (loss) during the period that includes the enactment date.
Valuation allowance is recorded to reduce the deferred tax assets to the net amount that the Company believes is
more likely than not to be realized. The Company considers all available evidence, both positive and negative, including
historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax
planning strategies, in assessing the need for a valuation allowance.
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected
to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on
an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals
or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative
probability) likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to
unrecognized tax benefits under taxes on income.
Research and development:
Research and development costs are charged to the consolidated statements of income (loss) as incurred.
Government grants and tax credits:
Government grants received by the Company relating to categories of operating expenditures are credited to the
consolidated statements of income (loss) during the period in which the expenditure to which they relate is charged. Royalty
and non-royalty-bearing grants from the IIA for funding certain approved research and development projects are recognized
sf-4200376
F-21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
at the time when the Company is entitled to such grants, on the basis of the related costs incurred, and included as a deduction
from research and development expenses.
The Company recorded grants in the amounts of $3,352, $5,643 and $2,844 for the years ended December 31, 2018,
2019 and 2020, respectively. The Company’s Israeli subsidiary is obligated to pay royalties amounting to 3%-3.5% of the
sales of certain products the development of which received grants from the IIA in previous years. The obligation to pay
these royalties is contingent on actual sales of the products. Grants received from the IIA may become repayable if certain
criteria under the grants are not met.
The French Research Tax Credit, Crédit d’Impôt Recherche (“CIR”), is a French tax incentive to stimulate research
and development (“R&D”) which is relevant for the Company's French subsidiaries (RivieraWaves SAS and CEVA
France). Generally, the CIR offsets the income tax to be paid and the remaining portion (if any) can be refunded. The CIR
is calculated based on the claimed volume of eligible R&D expenditures by the Company. As a result, the CIR is presented
as a deduction from “research and development expenses” in the consolidated statements of income (loss). During the years
ended December 31, 2018, 2019 and 2020, the Company recorded CIR benefits in the amount of $2,065, $2,312 and $3,287,
respectively.
Employee benefit plan:
Certain of the Company’s employees are eligible to participate in a defined contribution pension plan (the “Plan”).
Participants in the Plan may elect to defer a portion of their pre-tax earnings into the Plan, which is run by an independent
party. The Company makes pension contributions at rates varying up to 10% of the participant’s pensionable salary.
Contributions to the Plan are recorded as an expense in the consolidated statements of income (loss).
The Company’s U.S. operations maintain a retirement plan (the “U.S. Plan”) that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a portion
of their pre-tax earnings, up to the Internal Revenue Service annual contribution limit. The Company matches 50% of each
participant’s contributions up to a maximum of 6% of the participant’s base pay. Each participant may contribute up to
15% of base remuneration. Contributions to the U.S. Plan are recorded during the year contributed as an expense in the
consolidated statements of income (loss).
Total contributions for the years ended December 31, 2018, 2019 and 2020 were $1,048, $1,189 and $1,232,
respectively.
Accrued severance pay:
The liability of CEVA’s Israeli subsidiary for severance pay for employees hired prior to August 1, 2016 is
calculated pursuant to Israeli severance pay law based on the most recent salary of each employee multiplied by the number
of years of employment for that employee as of the balance sheet date. The Israeli subsidiary’s liability is fully provided
for by monthly deposits with severance pay funds, insurance policies and an accrual. The deposited funds include profits
and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to Israeli severance pay law or labor agreements. The value of these policies is recorded as an asset
on the Company’s consolidated balance sheets.
Effective August 1, 2016, the Israeli subsidiary’s agreements with new employees in Israel are under Section 14 of
the Severance Pay Law, 1963. The Israeli subsidiary’s contributions for severance pay have extinguished its severance
obligation. Upon contribution of the full amount based on the employee’s monthly salary for each year of service, no
additional obligation exists regarding the matter of severance pay, and no additional payments is made by the Israeli
sf-4200376
F-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
subsidiary to the employee. Furthermore, the related obligation and amounts deposited on behalf of the employee for such
obligation are not stated on the balance sheet, as the Israeli subsidiary is legally released from any obligation to employees
once the required deposit amounts have been paid.
Severance pay expenses, net of related income, for the years ended December 31, 2018, 2019 and 2020, were
$1,818, $1,826 and $1,983, respectively.
Equity-based compensation:
The Company accounts for equity-based compensation in accordance with FASB ASC No. 718, “Stock
Compensation” which requires the recognition of compensation expenses based on estimated fair values for all equity-based
awards made to employees and non-employee directors. Equity-based compensation primarily includes restricted stock
units (“RSUs”), as well as options, stock appreciation right (“SAR”), performance-based stock units (“PSUs”) and employee
stock purchase plan awards.
The Company elects the straight-line recognition method for awards subject to graded vesting based only on a
service condition and the accelerated method for awards that are subject to performance or market. The fair value of each
RSU and PSU (excluding PSUs based on market condition awards) is the market value as determined by the closing price
of the common stock on the day of grant. The Company estimates the fair value of PSU based on market condition awards
on the date of grant using the Monte-Carlo simulation model.
The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan
was estimated on the date of grant using the following assumptions:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected forfeiture
Contractual term of up to
2018
2019
2020
0%
0%
35%-42%
42%-43%
0.7%-2.2% 2.0%-2.5%
0%
24 months
0%
24 months
0%
32%-60%
0.1%-1.9%
0%
24 months
During the years ended December 31, 2018, 2019 and 2020, the Company recognized equity-based compensation
expense related to stock options, SARs, RSUs, PSUs and employee stock purchase plan as follows:
Year ended December 31,
2019
2020
2018
Cost of revenue
Research and development, net
Sales and marketing
General and administrative
Total equity-based compensation expense
$
588
5,141
1,587
3,051
$ 10,367
630
$
5,857
1,495
2,736
$ 10,718
639
$
6,874
2,038
4,085
$ 13,636
As of December 31, 2020, there was $13,572 of unrecognized compensation expense related to unvested RSUs,
PSUs and employee stock purchase plan. This amount is expected to be recognized over a weighted-average period of 1.4
years. As of December 31, 2020, there was no unrecognized compensation expense related to unvested stock options and
SARs.
sf-4200376
F-23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Fair value of financial instruments:
The carrying amount of cash, cash equivalents, short term bank deposits, trade receivables, other accounts
receivable, trade payables and other accounts payable approximates fair value due to the short-term maturities of these
instruments. Marketable securities and derivative instruments are carried at fair value. See Note 5 for more information.
Comprehensive income (loss):
The Company accounts for comprehensive income (loss) in accordance with FASB ASC No. 220, “Comprehensive
Income.” This statement establishes standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive income (loss) generally represents all
changes in stockholders’ equity during the period except those resulting from investments by, or distributions to,
stockholders. The Company determined that its items of other comprehensive income (loss) relate to unrealized gains and
losses, net of tax, on hedging derivative instruments and marketable securities.
Concentration of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of
cash, cash equivalents, bank deposits, marketable securities, foreign exchange contracts and trade receivables. The
Company invests its surplus cash in cash deposits and marketable securities in financial institutions and has established
guidelines relating to diversification and maturities to maintain safety and liquidity of the investments.
The majority of the Company’s cash and cash equivalents are invested in high grade certificates of deposits with
major U.S., European and Israeli banks. Generally, cash and cash equivalents and bank deposits may be redeemed on
demand and therefore minimal credit risk exists with respect to them. Nonetheless, deposits with these banks exceed the
Federal Deposit Insurance Corporation (“FDIC”) insurance limits or similar limits in foreign jurisdictions, to the extent such
deposits are even insured in such foreign jurisdictions. Generally, these cash equivalents may be redeemed upon demand
and, therefore management believes that it bears a lower risk. The short-term and long-term bank deposits are held in
financial institutions which management believes are institutions with high credit standing, and accordingly, minimal credit
risk from geographic or credit concentration. Furthermore, the Company holds an investment portfolio consisting principally
of corporate bonds. The Company has the ability to hold such investments until recovery of temporary declines in market
value or maturity. However, the Company can provide no assurance that it will recover declines in the market value of its
investments.
The Company is exposed primarily to fluctuations in the level of U.S. interest rates. To the extent that interest rates
rise, fixed interest investments may be adversely impacted, whereas a decline in interest rates may decrease the anticipated
interest income for variable rate investments.
The Company is exposed to financial market risks, including changes in interest rates. The Company typically does
not attempt to reduce or eliminate its market exposures on its investment securities because the majority of its investments
are short-term.
The Company’s trade receivables are geographically diverse, mainly in the Asia Pacific, and also in the United
States and Europe. Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit
evaluation and account monitoring procedures. The Company performs ongoing credit evaluations of its customers and to
date has not experienced any material losses. The Company makes estimates of expected credit losses for based upon its
assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its
customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other
factors that may affect its ability to collect from customers. Prior to the adoption of ASC 326, the Company evaluated its
sf-4200376
F-24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
outstanding accounts receivable and established an allowance for doubtful accounts according to specific identification
basis, based on information available on the relevant customer credit condition, current aging, historical experience and
based on the Company policy.
Year ended December 31, 2020
Allowance for credit losses
Year ended December 31, 2019
Allowance for doubtful accounts
Year ended December 31, 2018
Allowance for doubtful accounts
Balance at
beginning of
period
Additions Deduction
Balance at
end of period
$
327 $
1,443 $
(1,470) $
300
$
— $
327 $
—
$
327
$
— $
— $
—
$
—
The Company has no off-balance-sheet concentration of credit risk.
Derivative and hedging activities:
The Company follows the requirements of FASB ASC No. 815,” Derivatives and Hedging” which requires
companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position
at fair value. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether
it has been designated and qualifies as part of a hedging transaction and further, on the type of hedging transaction. For
those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging
instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment
in a foreign operation. Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations
in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects
of certain foreign currency exposures through the purchase of foreign exchange forward or option contracts (“Hedging
Contracts”). The policy, however, prohibits the Company from speculating on such Hedging Contracts for profit. To
protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in currencies other
than the U.S. dollar during the year, the Company instituted a foreign currency cash flow hedging program. The Company
hedges portions of the anticipated payroll of its non-U.S. employees denominated in the currencies other than the U.S. dollar
for a period of one to twelve months with Hedging Contracts. Accordingly, when the dollar strengthens against the foreign
currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the Hedging
Contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expenses is
offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to
variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument
is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings.
Effective as of January 1, 2019, the Company has followed the provisions of ASC 815, “Derivatives and Hedging”.
As a result of adopting the new accounting guidance, beginning on January 1, 2019, gains and losses on derivative
sf-4200376
F-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
instruments that are designated and qualify as a cash flow hedge are recorded in accumulated other comprehensive income
(loss) and reclassified into earnings during the same accounting period in which the designated forecasted transaction or
hedged item affects earnings. Prior to January 1, 2019, cash flow hedge ineffectiveness was separately measured and
reported immediately in earnings. Cash flow hedge ineffectiveness was immaterial during 2018.
As of December 31, 2019 and 2020, the notional principal amount of the Hedging Contracts to sell U.S. dollars
held by the Company was $5,500 and $0, respectively.
Advertising expenses:
Advertising expenses are charged to consolidated statements of income (loss) as incurred. Advertising expenses
for the years ended December 31, 2018, 2019 and 2020 were $1,080, $996 and $559, respectively.
Treasury stock:
The Company repurchases its common stock from time to time pursuant to a board-authorized share repurchase
program through open market purchases and repurchase plans.
The repurchases of common stock are accounted for as treasury stock, and result in a reduction of stockholders’
equity. When treasury shares are reissued, the Company accounts for the reissuance in accordance with FASB ASC No.
505-30, “Treasury Stock” and charges the excess of the repurchase cost over issuance price using the weighted average
method to retained earnings. The purchase cost is calculated based on the specific identified method. In the case where the
repurchase cost over issuance price using the weighted average method is lower than the issuance price, the Company credits
the difference to additional paid-in capital.
Net income (loss) per share of common stock:
Basic net income (loss) per share is computed based on the weighted average number of shares of common stock
outstanding during each year. Diluted net income (loss) per share is computed based on the weighted average number of
shares of common stock outstanding during each year, plus dilutive potential shares of common stock considered
outstanding during the year, in accordance with FASB ASC No. 260, “Earnings Per Share.”
Year ended December 31,
2019
2018
2020
Numerator:
Net income (loss)
Denominator (in thousands):
Basic weighted-average common stock outstanding
Effect of stock-based awards
Diluted weighted-average common stock outstanding
$
574 $
28 $ (2,379)
22,034 21,932 22,107
—
22,503 22,323 22,107
469
391
Basic net income (loss) per share
Diluted net income (loss) per share
$
$
0.03 $
0.03 $
0.00 $
0.00 $
(0.11)
(0.11)
The weighted-average number of shares related to outstanding equity-based awards excluded from the calculation
of diluted net income per share, since their effect was anti-dilutive, were 161,362 and 184,947 shares for the years ended
December 31, 2018 and 2019, respectively. The total number of shares related to outstanding equity-based awards excluded
from the calculation of diluted net loss per share was 1,132,017 for the years ended December 31, 2020.
sf-4200376
F-26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Recently Issued Accounting Pronouncement:
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. ASU
2019-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15,
2020. The Company is currently evaluating the impact of the new guidance on the Company’s consolidated financial
statements.
NOTE 2: REVENUE RECOGNITION
In May 2014, the FASB issued new guidance related to revenue recognition, which outlines a comprehensive
revenue recognition model and supersedes most prior revenue recognition guidance. The Company adopted ASC 606 on
January 1, 2018 for all open contracts on the date of initial application, and applied the standard using modified retrospective
approach, with the cumulative effect of applying ASC 606 recognized as an adjustment to the opening retained earnings
balance. The Company recorded a net increase to opening retained earnings of $8,555 as of January 1, 2018 due to the
cumulative impact of adopting ASC 606. The impact to revenues for the year ended December 31, 2018 was an increase of
$4,078, as a result of adopting ASC 606.
The following table includes estimated revenue expected to be recognized in future periods related to performance
obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenues do not
include amounts of royalties or unexercised contract renewals:
License and related revenues
2021
$11,603 $
2022
404
Under ASC 606, the Company is required to capitalize incremental costs that are related to sales during the
period, consisting primarily of sales commissions earned when contracts are signed. For contracts that have a duration of
less than one year, the Company follows ASC 606’s practical expediency, and expenses these costs when incurred; for
contracts with life exceeding one year, the Company records these costs in proportion to each completed contract
performance obligation. For the years ended December 31, 2018, 2019 and 2020, the amount of amortization was $120,
$183 and $71, respectively, and there was no impairment loss in relation to costs capitalized. Deferred sales commission
amounted to $24 as of December 31, 2020.
Disaggregation of revenue:
The following table provides information about disaggregated revenue by primary geographical market, major
product line and timing of revenue recognition:
Year ended December 31, 2019
Year ended December 31, 2020
Licensing and
Licensing and
related revenues Royalties
Total
related revenues Royalties
Total
Primary geographical markets
United States
Europe and Middle East
Asia Pacific
Total
Major product/service lines
$ 15,203 $
1,424 $ 16,627
21,493
16,211
49,032
21,627
$ 47,890 $ 39,262 $ 87,152
5,282
27,405
$
6,716 $ 14,097 $ 20,813
11,966
5,790
6,176
67,547
27,926
39,621
$ 52,513 $ 47,813 $ 100,326
sf-4200376
F-27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Connectivity products (baseband for
handset and other devices, Bluetooth,
Wi-Fi, NB-IoT, and SATA/SAS)
Smart sensing products (AI, sensor
fusion, audio/sound and imaging and
vision)
Total
Timing of revenue recognition
Products transferred at a point in time
Products and services transferred over
time
Total
$ 36,471 $ 34,206 $ 70,677
$ 40,748 $ 37,917 $ 78,665
11,419
16,475
$ 47,890 $ 39,262 $ 87,152
5,056
11,765
21,661
$ 52,513 $ 47,813 $ 100,326
9,896
$ 33,794 $ 39,262 $ 73,056
$ 40,075 $ 47,813 $ 87,888
14,096
14,096
$ 47,890 $ 39,262 $ 87,152
—
12,438
12,438
$ 52,513 $ 47,813 $ 100,326
—
Primary geographical markets
United States
Europe and Middle East
Asia Pacific
Total
Major product/service lines
Connectivity products (baseband for
handset and other devices, Bluetooth,
Wi-Fi, NB-IoT, and SATA/SAS)
Smart sensing products (AI, sensor
fusion, audio/sound and imaging and
vision)
Total
Timing of revenue recognition
Products transferred at a point in time
Products and services transferred over
time
Total
Year ended December 31, 2018
Licensing and
related revenues Royalties
Total
$
6,260 $
3,672
30,514
8,354
17,370
52,153
$ 40,446 $ 37,431 $ 77,877
2,094 $
13,698
21,639
$ 30,628 $ 35,055 $ 65,683
9,818
12,194
$ 40,446 $ 37,431 $ 77,877
2,376
$ 30,744 $ 37,431 $ 68,175
9,702
9,702
$ 40,446 $ 37,431 $ 77,877
—
Contract balances:
The following table provides information about trade receivables, unbilled receivables and contract liabilities from
contracts with customers:
December 31, 2019
December 31, 2020
sf-4200376
F-28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Trade receivables
Unbilled receivables (associated with licensing and related revenue)
Unbilled receivables (associated with royalties)
Deferred revenues (short-term contract liabilities)
$
11,066
5,269
11,972
3,642
$
14,765
5,479
10,980
2,434
The Company receives payments from customers based upon contractual payment schedules; trade receivables are
recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled
receivables associated with licensing and other include amounts related to the Company’s contractual right to
consideration for completed performance objectives not yet invoiced. Unbilled receivables associated with royalties are
recorded as the Company recognizes revenues from royalties earned during the quarter, but not yet invoiced, either by
actual sales data received from customers, or, when applicable, by the Company’s estimation. Contract liabilities (deferred
revenue) include payments received in advance of performance under the contract, and are realized with the associated
revenue recognized under the contract.
During the year ended December 31, 2020, the Company recognized $3,575 that was included in deferred revenues
(short-term contract liability) balance at January 1, 2020.
Practical expediency and exemptions:
The Company generally expenses sales commissions when incurred because the amortization period would have
been less than one year. The Company records these costs within sales and marketing expenses on the Company’s
consolidated statements of income (loss).
The Company does not assess whether a contract has a significant financing component if the expectation at
contract inception is such that the period between payment by the customer and the transfer of the promised goods or
services to the customer will be one year or less.
sf-4200376
F-29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 3: MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable securities at December 31, 2019 and 2020:
As at December 31, 2020
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Available-for-sale - matures within one
year:
Corporate bonds
Available-for-sale - matures after one
year through five years:
Corporate bonds
$ 12,667
$
49
$
(7)
$ 12,709
75,483
667
(105)
76,045
Total
$ 88,150
$
716
$
(112)
$ 88,754
As at December 31, 2019
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Available-for-sale - matures within one
year:
Corporate bonds
Available-for-sale - matures after one
year through five years:
Corporate bonds
$ 18,224
$
16
$
(11)
$ 18,229
46,593
168
(123)
46,638
Total
$ 64,817
$
184
$
(134)
$ 64,867
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized
loss position as of December 31, 2019 and 2020, and the length of time that those investments have been in a continuous
loss position:
sf-4200376
F-30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
As of December 31, 2020
As of December 31, 2019
Fair value
$ 31,393
$ 22,852
Less than 12 months
Gross
unrealized
loss
12 months or greater
Gross
unrealized
loss
Fair value
$
$
(91)
(102)
$ 7,381
$ 14,231
$
$
(21)
(32)
During the years ended December 31, 2018, and 2019 the Company did not recognize any other-than temporary
impairment losses. During the year ended December 31, 2020, with the adoption of ASU 2016-13, the amount of credit
losses recorded was not material.
The following table presents gross realized gains and losses from sale of available-for-sale marketable securities:
Year ended December 31,
2019
2018
2020
Gross realized gains from sale of available-for-sale marketable securities
Gross realized losses from sale of available-for-sale marketable securities
$
$
4 $
(71) $
13 $
(41) $
14
(20)
NOTE 4: LEASES
The Company leases substantially all of its office space and vehicles under operating leases. The Company's leases
have original lease periods expiring between 2021 and 2034. Many leases include one or more options to renew. The
Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably
certain at lease commencement. Lease payments included in the measurement of the lease liability comprise the following:
the fixed non-cancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal
period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be
terminated early.
The following is a summary of weighted average remaining lease terms and discount rate for all of the Company’s
operating leases:
Weighted average remaining lease term (years)
Weighted average discount rate
December 31, 2020
4.67
1.92%
Total operating lease cost and cash payments for operating leases were as follows:
Operating lease cost
Cash payments for operating leases
$ 2,238
$ 2,173
$ 2,587
$ 2,975
Year ended December 31,
2020
2019
sf-4200376
F-31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Maturities of lease liabilities are as follows:
2021
2022
2023
2024
2025 and thereafter
Total undiscounted cash flows
Less imputed interest
Present value of lease liabilities
2,996
2,688
1,198
467
1,806
9,155
414
$ 8,741
sf-4200376
F-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 5: FAIR VALUE MEASUREMENT
FASB ASC No. 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for
measuring fair value. Fair value is an exit price, representing the amount that would be received for selling an asset or paid
for the transfer of a liability in an orderly transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in pricing an asset or a
liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in
the valuation methodologies in measuring fair value:
Level I
Level II
Level III
Unadjusted quoted prices in active markets that are accessible on the
measurement date for identical, unrestricted assets or liabilities;
Quoted prices in markets that are not active, or inputs that are observable,
either directly or indirectly, for substantially the full term of the asset or
liability; and
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (supported by little or no
market activity).
The Company measures its marketable securities and foreign currency derivative contracts at fair value. Marketable
securities and foreign currency derivative contracts are classified within Level II as the valuation inputs are based on quoted
prices and market observable data of similar instruments.
The table below sets forth the Company’s assets measured at fair value by level within the fair value hierarchy.
Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Description
Assets:
Marketable securities:
Corporate bonds
December
31, 2020
Level I
Level II
Level III
$ 88,754
—
$ 88,754
—
Description
Assets:
Marketable securities:
Corporate bonds
Foreign exchange contracts
December
31, 2019
Level I
Level II
Level III
$ 64,867
56
—
—
$ 64,867
56
—
—
sf-4200376
F-33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 6: PROPERTY AND EQUIPMENT, NET
Composition of assets, grouped by major classifications, is as follows:
Cost:
Computers, software and equipment
Office furniture and equipment
Leasehold improvements
Less – Accumulated depreciation
Property and equipment, net
As at December 31,
2019
2020
$ 19,182 $ 21,322
998
889
4,059
3,368
23,439 26,379
(15,560) (18,793)
$ 7,879 $ 7,586
The Company recorded depreciation expenses in the amount of $3,104 and $3,233 for the years ended
December 31, 2019 and 2020, respectively.
NOTE 7: GOODWILL AND INTANGIBLE ASSETS, NET
(a) Goodwill:
Changes in goodwill are as follows:
Balance as of January 1,
Acquisition
Balance as of December 31,
(b) Intangible assets:
Year ended December 31,
2019
$ 46,612
4,458
2020
$ 51,070
—
$ 51,070
$ 51,070
Year ended December 31, 2019
Year ended December 31, 2020
Weighted
average
amortization
period (years)
Gross carrying
amount
Accumulated
amortization
Net
Gross carrying
amount
Accumulated
amortization
Net
Intangible assets –amortizable:
Intangible assets related to the
acquisition of Hillcrest Labs
business
Customer relationships
Customer backlog
Core technologies
4.4
0.5
7.5
$ 3,518 $ 395 $ 3,123
7
2,325
72
2,475
65
150
sf-4200376
F-34
$ 3,518 $ 1,262 $ 2,256
—
1,995
72
2,475
72
480
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Intangible assets related to a
technology investment in
Immervision
Core technologies
Intangible assets related to an
investment in NB-IoT
technologies
NB-IoT technologies (*)
6.4
7,063
472
6,591
7,063
1,575
5,488
7.0
1,961
583
1,378
1,961
864
1,097
Total intangible assets
$ 15,089 $
1,665 $ 13,424
$ 15,089 $
4,253 $ 10,836
(*) During the first quarter of 2018, the Company entered into an agreement to acquire certain NB-IoT
technologies in the amount of $2,800, of which technologies valued at $600 has not been received. Of the $2,200,
$210 has not resulted in cash outflows as of December 31, 2020. In addition, the Company participated in
programs sponsored by the Hong Kong government for the support of the above investment, and as a result, the
Company received during 2019 an amount of $239 related to the NB-IoT technologies, which was reduced from
the gross carrying amount of intangible assets. The Company recorded the amortization cost of the NB-IoT
technologies in “cost of revenues” on the Company’s consolidated statements of income (loss).
Future estimated annual amortization charges are as follows:
2021
2022
2023
2024
2025 and thereafter
2,582
2,581
1,906
1,852
1,915
$ 10,836
The Company recorded amortization expense in the amount of $2,165 and $2,588 for the years ended December
31, 2019 and 2020, respectively.
NOTE 8: ACCRUED EXPENSES AND OTHER PAYABLES
As at December 31,
2019
2020
Engineering accruals
Professional fees
Government grants
Income taxes payable, net
Facility related accruals
Intangible assets purchase payables
Other
Total
sf-4200376
F-35
$
$
788
920
790
524
231
85
—
1,293
$ 3,748 $ 3,843
629
527
88
284
204
1,228
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 9: STOCKHOLDERS’ EQUITY
a. Common stock:
Holders of common stock are entitled to one vote per share on all matters to be voted upon by the Company’s
stockholders. In the event of a liquidation, dissolution or winding up of the Company, holders of common stock are entitled
to share ratably in all of the Company’s assets. The Board of Directors may declare a dividend out of funds legally available
therefore and the holders of common stock are entitled to receive ratably any such dividends. Holders of common stock
have no preemptive rights or other subscription rights to convert their shares into any other securities.
b. Preferred stock:
The Company is authorized to issue up to 5,000,000 shares of “blank check” preferred stock, par value $0.001 per
share. Such preferred stock may be issued by the Board of Directors from time to time in one or more series. These series
may have designations, preferences and relative, participating, optional or other special rights and any qualifications,
limitations or restrictions thereof, including dividend rights, conversion rights, exchange rights, voting rights, redemption
rights (including sinking and purchase fund provisions), and dissolution preferences as may be determined by the
Company’s Board of Directors.
c. Share repurchase program:
In August 2008, the Company announced that its Board of Directors approved a share repurchase program for up
to one million shares of common stock which was further extended by an additional 5,700,000 shares in 2010, 2013, 2014
and 2018. In February 2020, the Company’s Board of Directors authorized the repurchase by the Company of an additional
700,000 shares of common stock.
As of December 31, 2020, 497,608 shares of common stock remained authorized for repurchase under the
Company’s share repurchase program.
d. Employee and non-employee stock plans:
The Company grants a mix of stock options, SARs capped with a ceiling and RSUs to employees and non-employee
directors of the Company and its subsidiaries under the Company’s equity plans and provides the right to purchase common
stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries.
The SAR unit confers the holder the right to stock appreciation over a preset price of the Company’s common stock
during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares
of the Company’s common stock. The ceiling limits the maximum income for each SAR unit. SARs are considered an
equity instrument as it is a net share settled award capped with a ceiling (400% for all SAR grants made in years prior to
2016. Starting in 2016, the Company ceased to grant SAR units). The options and SARs granted under the Company’s stock
incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and
SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one
year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four
years. Options granted to non-employee directors vest 25% of the shares underlying the option on each anniversary of the
option grant.
In connection with the Company’s acquisition of RivieraWaves, on July 7, 2014, the Company issued an aggregate
of 113,000 SARs to 27 employees of RivieraWaves who joined the Company in connection with the acquisition. The value
of these grants was not included in the acquisition price of RivieraWaves. The SARs were granted outside of the Company’s
existing equity plans and were granted as a material inducement to such individuals entering into employment with the
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F-36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Company, in accordance with NASDAQ Listing Rule 5635(c)(4). All of the SARs were priced at $15.17, the fair market
value on the grant date, and vest over four years, with 25% of the SARs vesting after one year and the remaining vest in
equal portions over the following 36 months, such that all such SARs vested as of December 31, 2018, subject to the
employee's continuous service through each vesting date. The SARs have a ceiling limit for maximum income capped at
400%, expire seven years from the grant date and are subject to the terms and condition of the individual SAR
agreements. The SAR grants were approved by the compensation committee of the Board of Directors of the Company.
A summary of the Company’s stock option and SARs activities and related information for the year ended
December 31, 2020, is as follows:
Outstanding at the beginning of the year
Granted
Exercised
Forfeited or expired
Outstanding at the end of the year (2)
Exercisable at the end of the year (3)
Number of
options and
SAR units (1)
642,253
—
(353,163)
(21)
289,069
289,069
Weighted
average
remaining
contractual
term
3.5
Aggregate
intrinsic-value
$ 4,718
Weighted
average
exercise
price
$ 20.14
—
18.29
16.20
$ 22.42
$ 22.42
3.6
3.6
$ 6,673
$ 6,673
(1) The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75%
of the SAR units subject to the grant.
(2) Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 280,427 shares of
the Company's common stock issuable upon exercise.
(3) Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 280,427 shares of
the Company's common stock issuable upon exercise.
In 2018, 2019 and 2020, the Company did not grant options and/or SARs.
The total intrinsic value of options and SARs exercised during the years ended December 31, 2018, 2019 and 2020
was $384, $629 and $6,876, respectively.
The options and SARs granted to employees of the Company and its subsidiaries and the options granted to non-
employee directors of the Company which were outstanding as of December 31, 2020 have been classified into a range of
exercise prices as follows:
Outstanding
Weighted
average
remaining
contractual
life (years)
2.1
3.7
4.5
Number
of
options
and SARs
78,320
86,949
123,800
Weighted
average
exercise
price
$ 15.57
$ 19.42
$ 28.85
F-37
Exercise price
(range)
14.18-18.62
19.36-19.83
24.86-30.60
sf-4200376
Exercisable
Number
of
options
and SARs
78,320
86,949
123,800
Weighted
average
remaining
contractual
life (years)
2.1
3.7
4.5
Weighted
average
exercise
price
$ 15.57
$ 19.42
$ 28.85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Exercise price
(range)
Outstanding
Weighted
average
remaining
contractual
life (years)
3.6
Number
of
options
and SARs
289,069
Weighted
average
exercise
price
$ 22.42
Exercisable
Number
of
options
and SARs
289,069
Weighted
average
remaining
contractual
life (years)
3.6
Weighted
average
exercise
price
$ 22.42
A RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion
thereof vests. RSUs granted to employees generally vest in three equal annual installments starting on the first anniversary
of the grant date. Until the end of 2017, RSUs granted to non-employee directors would generally vest in full on the first
anniversary of the grant date. Starting in 2018, RSUs granted to non-employee directors would generally vest in two equal
annual installments starting on the first anniversary of the grant date.
On May 7, 2019, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the
Company approved, effective immediately, an amendment to the RSU award granted to the Company’s Chief Executive
Officer (the “CEO”) on February 19, 2019, consisting of 30,000 RSUs that vest in a three-year period (the “Prior RSU
Award”). The Committee and the CEO mutually agreed to amend the Prior RSU Award. In lieu of the Prior RSU Award,
the CEO received (1) 10,000 time-based RSUs with the same original three-year vesting schedule starting with 1/3 on
February 19, 2020, and (2) an opportunity to receive up to 24,000 PSUs based on the Company’s achievement of the 2019
license and related revenue goal of $41,000 that was approved by the Board (the “2019 License Revenue Target”). If the
Company’s results equal 100% of the 2019 License Revenue Target, the CEO would receive 20,000 PSUs. If the
Company’s results were between 90% to 99% of the 2019 License Revenue Target, the CEO would receive the same
proportion of the 20,000 PSUs. If the Company’s results exceeded 100% of the 2019 License Revenue Target, every 1%
increase of the 2019 License Revenue Target, up to 120%, would result in an increase of 1% of the 20,000 PSUs to be
awarded to the CEO. In 2019, the Company achieved 116% of the 2019 License Revenue Target, so based on the PSU
award conditions, the CEO received 23,200 PSUs. The PSUs vest in a three-year period, with 1/3 of the PSUs having vested
on February 19, 2020, and thereafter 1/3 of the remaining PSUs would vest on each of February 19, 2021 and February 19,
2022.
On July 19, 2019, the Company issued a total of 52,000 RSUs to 22 employees who joined the Company in
connection with the Company's acquisition of the Hillcrest Labs business. The RSUs were granted outside of the Company’s
existing equity plans and were granted as inducements to employment in accordance with NASDAQ Listing Rule
5635(c)(4). The RSUs were priced at $25.41 per share, the fair market value on the grant date, and vest over three years,
with 34% of the RSUs vesting after one year and the remaining RSUs vesting in equal portions over the following 24
months, such that all RSUs vest after three years, subject to the employee's continuous service through each vesting date.
On February 20, 2020, the Committee granted 17,045, 5,113, 4,545 and 4,545 PSUs to each of the Company’s
CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively,
pursuant to the 2011 Plan (collectively, the “Short-Term Executive PSUs”). The performance goals for the Short-Term
Executive PSUs with specified weighting were as follows:
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F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Weighting
50%
50%
Goals
Vesting of the full 50% of the PSUs occurs if the
Company achieves the 2020 license and related revenue
amount in the budget approved by the Board (the “2020
License Revenue Target”). The vesting threshold is
achievement of 90% of 2020 License Revenue Target. If
the Company’s actual result is above 90% but less than
99% of the 2020 License Revenue Target, 91% to 99% of
the eligible PSUs would be subject to vesting. If the
Company’s actual result exceeds 100% of the 2020
License Revenue Target, every 1% increase of the 2020
License Revenue Target, up to 110%, would result in an
increase of 2% of the eligible PSUs.
Vesting of the full 50% of the PSUs occurs if the
Company achieves positive total shareholder return
whereby the return on the Company’s stock for 2020 is
greater than the S&P500 index. The vesting threshold is if
the return on the Company’s stock for 2020 is at least 90%
of the S&P500 index. If the return on the Company’s
stock, in comparison to the S&P500, is above 90% but
less than 99% of the S&P500 index, 91% to 99% of the
eligible PSUs would be subject to vesting. If the return on
the Company’s stock exceeds 100% of the S&P500 index,
every 1% increase in comparison to the S&P500 index, up
to 110%, would result in an increase of 2% of the eligible
PSUs.
Additionally, PSUs representing an additional 20%, meaning an additional 3,410, 1,023, 909 and 909 PSUs,
would be eligible for vesting for each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief
Financial Officer and Chief Operating Officer, respectively, if the performance goals set forth above are exceeded.
In 2020, the Company achieved 103% of the 2020 License Revenue Target and a positive total shareholder return
whereby the return on the Company’s stock for 2020 was 323% greater than the S&P500 index, so based on the PSU
award conditions, the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief
Operating Officer received 19,261, 5,778, 5136 and 5,136 PSUs, respectively.
The Short-Term Executive PSUs vest 33.4% on February 20, 2021, 33.3% on February 20, 2022 and 33.3% on
February 20, 2023.
Also, on February 20, 2020, the Committee granted 56,818, 35,511, 28,409 and 28,409 long-term PSUs to each of
the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer,
respectively, pursuant to the 2011 Plan (collectively, the “Long-Term Executive PSUs”). The Long-Term Executive
PSUs vest upon the achievement of either of the following performance goals:
If the Company’s non-GAAP EPS on or before the end of 2022 is tripled from the Company’s non-GAAP
EPS in 2018.
sf-4200376
F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
If the Company’s market cap reaches at least $1 billion for at least 30 days of trading based on the market
cap information set forth on Yahoo Finance.
In 2020, the Company did not achieve any of the above performance goals. On February 17, 2021, the Company
achieved the market cap performance goal, and the Long-Term Executive PSUs vested.
Furthermore, on February 20, 2020, the Committee granted an aggregate of 18,500 PSUs to certain key employees
of the Company. The PSUs shall vest over three years upon the achievement of the following performance goals, with 34%
of the PSUs vesting after one year and the remaining vesting in equal portions over the following 24 months, such that all
PSUs shall vest after three years, subject to the employee's continuous service through each vesting date:
Weighting
50%
30%
20%
Goals
Achievement of specified bookings in 2020 (“Specified
Bookings”) for licensing and related revenues associated
with certain of the Company’s technologies (the
“Specified Booking Target”) in specific geographic
region. If 90% of the Specified Booking Target is
achieved, 90% of the bonus amount under this component
would be payable with every 1% increase resulting in a
corresponding increase in the bonus amount under this
component.
Execution of definitive license agreements for pre-
determined software with at least five of seven original
equipment manufacturers. If five such agreements are
executed, 71% of the bonus amount under this component,
which is subject to a 6% weighting, would be payable. If
six agreements are executed, 86% of the bonus amount
under this component, which is subject to a 6% weighting,
would be payable.
Execution of definitive license agreements with at least
two customers in a predetermined strategic market.
In 2020, six original equipment manufacturers agreements were executed, so based on the PSU award conditions,
the key employees of the Company received 4,515 PSUs. The other two performance goals were not achieved.
A summary of the Company’s RSU and PSU activities and related information for the year ended December 31,
2020, is as follows:
Unvested as at the beginning of the year
Granted
Vested
Forfeited
Unvested at the end of the year
Number of
RSUs and
PSUs
732,564
479,171
(317,430)
(51,357)
842,948
Weighted average
grant-date
fair value
$ 30.11
29.47
31.30
29.70
$ 29.30
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F-40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Stock Plans
As of December 31, 2020, the Company maintains the Company’s 2003 Director Stock Option Plan (the “Director
Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan” and together with the Director Plan, the “Stock Plans”).
As of December 31, 2020, options, SARs, RSUs and PSUs to purchase 1,250,316 shares of common stock were
available for grant under the Stock Plans.
2011 Stock Incentive Plan
The 2011 Plan was adopted by the Company’s Board of Directors in February 2011 and stockholders on May 17,
2011. Up to 3,200,000 shares of common stock (subject to adjustment in the event of future stock splits, future stock
dividends or other similar changes in the common stock or the Company’s capital structure), plus the number of shares that
remain available for grant of awards under the Company’s 2002 Stock Incentive Plan (the “2002 Plan), plus any shares that
would otherwise return to the 2002 Plan as a result of forfeiture, termination or expiration of awards previously granted
under the 2002 plan (subject to adjustment in the event of stock splits and other similar events), are reserved for issuance
under the 2011 Plan. The 2002 Plan was automatically terminated and replaced and superseded by the 2011 Plan, except
that any awards previously granted under the 2002 Plan shall remain in effect pursuant to their term. As of December 31,
2020, there were no outstanding equity awards remaining in the 2002 Plan.
The 2011 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code, nonqualified stock options, restricted stock, RSUs, dividend equivalent rights and stock appreciation rights.
Officers, employees, directors, external consultants and advisors of the Company and those of the Company’s present and
future parent and subsidiary corporations are eligible to receive awards under the 2011 Plan. Under current U.S. tax laws,
incentive stock options may only be granted to employees. The 2011 Plan permits the Company's Board of Directors or a
committee thereof to determine how grantees may pay the exercise or purchase price of their awards.
Unless sooner terminated, the 2011 Plan is effective until April 2030.
The Company’s Board of Directors or a committee thereof has authority to administer the 2011 Plan. The
Company’s Board of Directors has the authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2011 Plan and to interpret its provisions.
2003 Director Stock Option Plan
Under the Director Plan, 1,350,000 shares of common stock (subject to adjustment in the event of future stock splits,
future stock dividends or other similar changes in the common stock or the Company’s capital structure) are authorized for
issuance.
The Director Plan provides for the grant of nonqualified stock options to non-employee directors. Options must be
granted at an exercise price equal to the fair market value of the common stock on the date of grant. Options may not be
granted for a term in excess of ten years.
Under the original terms of the Director Plan, (a) any person who becomes a non-employee director of the Company
was automatically granted an option to purchase 38,000 shares of common stock, (b) on June 30 of each year, beginning in
2004, each non-employee director who had served on the Company’s Board of Directors for at least six (6) months as of
such date was automatically granted an option with the exercise price being the fair market value of the Company’s common
stock as of July 1st of each year to purchase 13,000 shares of common stock, and each non-employee director would receive
sf-4200376
F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
an option with the exercise price being the fair market value of the Company’s common stock as of July 1st of each year to
purchase 13,000 shares of common stock for each committee on which he or she had served as chairperson for at least six
months prior to such date, and (c) the Chairman of the Board was granted an additional option with the exercise price being
the fair market value of the Company’s common stock as of July 1st of each year to purchase 15,000 shares of common
stock on an annual basis. In February 2015, the Board suspended the automatic grant of stock options to each non-employee
director and the Chairman of the Board under the Director Plan. In lieu of the automatic stock option grants under the
Director Plan, the Board approved an equity award to all current directors of the Company consisting solely of RSUs granted
under the 2011 Plan. From February 2015 to 2017, the Chairman of the Board of Directors would receive a RSU award
with an annualized value of $268,520, directors with a chairperson position on any committee of the Board of Directors
would receive a RSU award with an annualized value of $249,340 and all other directors would receive a RSU award with
an annualized value of $124,670. In response to market trends, in lieu of the prior annualized values of the RSU awards to
directors, starting in July 2018, each director was granted shares of RSUs based on an annualized value of $124,670, which
vest 50% on the first year anniversary of the grant date and the remaining 50% on the second year anniversary of the grant
date. In July 2018, 2019 and 2020, based on the new parameters, the directors of the Company received a grant of RSUs in
the aggregate amount of 28,896 RSUs, 35,399 RSUs and 26,984 RSUs, respectively. In February 2019, the Board
determined that each new director of the Company, in lieu of an option to purchase 38,000 shares of common stock, would
receive a RSU award with an annualized value of $124,670.
The Company’s Board of Directors or a committee thereof may grant additional options to purchase common stock
with a vesting schedule to be determined by the Board of Directors in recognition of services provided by a non-employee
director in his or her capacity as a director.
The Company’s Board of Directors or a committee thereof has authority to administer the Director Plan. The
Company’s Board of Directors or a committee thereof has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Director Plan and to interpret its provisions.
2002 Employee Stock Purchase Plan (“ESPP”)
The ESPP was adopted by the Company’s Board of Directors and stockholder in July 2002. The ESPP is intended
to qualify as an “Employee Stock Purchase Plan” under Section 423 of the U.S. Internal Revenue Code and is intended to
provide the Company’s employees with an opportunity to purchase shares of common stock through payroll deductions.
An aggregate of 3,050,000 shares of common stock (subject to adjustment in the event of future stock splits, future stock
dividends or other similar changes in the common stock or the Company’s capital structure) are reserved for issuance. As
of December 31, 2020, 334,486 shares of common stock were available for future issuance under the ESPP.
All of the Company’s employees who are regularly employed for more than five months in any calendar year and
work 20 hours or more per week are eligible to participate in the ESPP. Non-employee directors, consultants, and employees
subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical their participation in an employee
stock purchase plan are not eligible to participate in the ESPP.
The ESPP designates offer periods, purchase periods and exercise dates. Offer periods generally will be overlapping
periods of 24 months. Purchase periods generally will be six-month periods. Exercise dates are the last day of each purchase
period. In the event the Company merges with or into another corporation, sells all or substantially all of the Company’s
assets, or enters into other transactions in which all of the Company’s stockholders before the transaction own less than
50% of the total combined voting power of the Company’s outstanding securities following the transaction, the Company’s
Board of Directors or a committee designated by the Board may elect to shorten the offer period then in progress.
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F-42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
The price per share at which shares of common stock may be purchased under the ESPP during any purchase period
is the lesser of:
85% of the fair market value of common stock on the date of grant of the purchase right, which is the
commencement of an offer period; or
85% of the fair market value of common stock on the exercise date, which is the last day of a purchase period.
The participant’s purchase right is exercised in the above noted manner on each exercise date arising during the
offer period unless, on the first day of any purchase period, the fair market value of common stock is lower than the fair
market value of common stock on the first day of the offer period. If so, the participant’s participation in the original offer
period will be terminated, and the participant will automatically be enrolled in the new offer period effective the same date.
The ESPP is administered by the Board of Directors or a committee designated by the Board, which will have the
authority to terminate or amend the plan, subject to specified restrictions, and otherwise to administer and resolve all
questions relating to the administration of the plan.
e. Dividend policy:
The Company has never declared or paid any cash dividends on its capital stock and does not anticipate paying any
cash dividends in the foreseeable future.
NOTE 10: DERIVATIVES AND HEDGING ACTIVITIES
The fair value of the Company’s outstanding derivative instruments is as follows:
Derivative assets:
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts
Foreign exchange forward contracts
Total
Year ended December 31,
2019
2020
$
$
14
42
56
$
$
—
—
—
The Company recorded the fair value of derivative assets in “prepaid expenses and other current assets” on the
Company’s consolidated balance sheets.
The changes in unrealized gains (losses) recognized in “accumulated other comprehensive income (loss)” on
derivatives, before tax effect, is as follows:
Year ended December 31,
2019
2018
2020
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts
Foreign exchange forward contracts
$
$
(146) $
(285)
(431) $
55 $
385
440 $
(8)
640
632
sf-4200376
F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
The net (gains) losses reclassified from “accumulated other comprehensive income (loss)” into income, are as
follows:
Year ended December 31,
2019
2018
2020
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts
Foreign exchange forward contracts
$
$
132 $
222
354 $
(27) $
(280)
(307) $
(6)
(682)
(688)
The Company recorded in cost of revenues and operating expenses, a net loss of $354, a net gain of $307 and a net
gain of $688 during the years ended December 31, 2018, 2019 and 2020, respectively, related to its Hedging Contracts.
NOTE 11: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of
taxes:
Year ended December 31, 2019
Year ended December 31, 2020
Unrealized
gains (losses)
on available-
for-sale
marketable
securities
Unrealized
gains (losses)
on cash flow
hedges
Total
Unrealized
gains (losses) on
available-for-
sale marketable
securities
Unrealized
gains (losses)
on cash flow
hedges
Total
Beginning balance
$
(1,046) $
(68) $
(1,114)
$
45 $
49 $
94
Other comprehensive income
before reclassifications
Amounts reclassified from
accumulated other
comprehensive income (loss)
Net current period other
comprehensive income (loss)
Ending balance
1,072
388
1,460
428
556
984
19
(271)
(252)
5
(605)
(600)
1,091
117
$
45 $
49 $
1,208
94
$
433
478 $
(49)
— $
384
478
The following table provides details about reclassifications out of accumulated other comprehensive income (loss):
Details about Accumulated
Other Comprehensive Income
(Loss) Components
Amount reclassified from accumulated other
comprehensive income (loss)
Affected Line Item in the
Statements of Income (Loss)
Year ended December 31,
2018
2019
2020
sf-4200376
F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
Unrealized gains (losses) on cash
flow hedges
$
Unrealized gains (losses) on
available-for-sale marketable
securities
(7)
(308)
(13)
(26)
(354)
(42)
(312)
(67)
(6)
(61)
$
5
272
8
22
307
36
271
(28)
(9)
(19)
$
14
607
19
48
688
83
605
(6)
(1)
(5)
Cost of revenues
Research and development
Sales and marketing
General and administrative
Total, before income taxes
Income tax expense (benefit)
Total, net of income taxes
Financial income, net
Income tax benefit
Total, net of income taxes
$
(373)
$
252
$
600
Total, net of income taxes
sf-4200376
F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 12: GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATA
a. Summary information about geographic areas:
The Company manages its business on a basis of one reportable segment: the licensing of intellectual property to
semiconductor companies and electronic equipment manufacturers (see Note 1 for a brief description of the Company’s
business). The following is a summary of revenues within geographic areas:
Year ended December 31,
2019
2020
2018
Revenues based on customer location:
United States
Europe, Middle East (3)
Asia Pacific (1) (2)
(1) China
(2) S. Korea
(3) Germany
*) Less than 10%
Long-lived assets by geographic region:
Israel
France
United States
Other
$
8,354 $ 16,627 $ 20,813
11,966
21,493
17,370
67,547
49,032
52,153
$ 77,877 $ 87,152 $ 100,326
$ 33,672 $ 33,233 $ 51,726
*)
*)
$
*)
$ 13,873 $ 16,100
7,989
2019
2020
$
$
15,032 $
605
1,356
1,952
18,945 $
11,248
814
2,868
1,708
16,638
b. Major customer data as a percentage of total revenues:
The following table sets forth the customers that represented 10% or more of the Company’s total revenues in each
of the periods set forth below:
Customer A
Customer B
*) Less than 10%
Year ended December 31,
2020
2019
2018
15%
19%
15%
19%
14%
15%
sf-4200376
F-46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
c. Information about Products and Services:
The following table sets forth the products and services as percentages of the Company’s total revenues in each of
the periods set forth below:
Connectivity products
Smart sensing products
Year ended December 31,
2020
2019
2018
84%
16%
81%
19%
78%
22%
sf-4200376
F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
NOTE 13: SELECTED STATEMENTS OF INCOME DATA
a. Financial income, net:
Year ended December 31,
2019
2020
2018
Interest income
Loss on available-for-sale marketable securities, net
Amortization of premium on available-for-sale marketable
securities, net
Foreign exchange gain (loss), net
Total
$
4,499 $
(67)
4,220 $
(28)
3,291
(6)
(773)
(241)
3,418 $
(554)
(347)
3,291 $
(444)
443
3,284
$
b. Revaluation of investment in non-marketable equity securities:
The Company recorded a loss of $870 in 2018 related to revaluation of its investment in non-marketable equity
securities. During the years ended December 31, 2019 and 2020, no impairment loss was identified.
The following table summarizes the total carrying value of the Company’s investment in non-marketable equity
securities held as of December 31, 2020 including cumulative unrealized downward adjustments made to the initial cost
basis of the investment:
Initial cost basis
Downward adjustments
Total carrying value at the end of the period
$
$
1,806
(870)
936
NOTE 14: TAXES ON INCOME
a. U.S. tax reform
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax
Act includes significant changes to the U.S. corporate income tax system including but not limited to: a federal
corporate rate reduction from 35% to 21%; creation of the base erosion anti-abuse tax (“BEAT”), introduction of
the Global Intangible Low Taxed Income (“GILTI”) provisions;; the transition of U.S. international taxation from
a worldwide tax system to a modified territorial tax system; modifications to the allowance of net business interest
expense deductions; modification of net operating loss provisions; changes to 162(m) limitation rules and bonus
depreciation provisions. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on
those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”), with future dividend
sf-4200376
F-48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act
became effective January 1, 2018.
In connection with its analysis of the impact of the Tax Act, the Company had $16,053 of Transition Tax
inclusion reported on the tax return filed for the year ended December 31, 2017. After the utilization of existing tax
net operating loss carryforwards, the Company did not pay additional U.S. federal cash taxes.
The Tax Act added a new code section 951A, which requires a U.S. shareholder of a Controlled Foreign
Corporation (“CFC”) to include in current taxable income, its GILTI in a manner similar to Subpart F income. The
statutory language also allows a deduction for corporate shareholders equal to 50% of the GILTI inclusion, which
would be reduced to 37.5% starting in 2026. In general, GILTI imposes a tax on the net income of foreign corporate
subsidiaries in excess of a deemed return on their tangible assets. The Company is subject to GILTI for 2018 and
future periods. The Company is electing to account for the income tax effects of GILTI as a ‘period cost‘, an income
tax expenses in the year the tax is incurred.
For the fiscal year ended 2019 and 2020, the Company operated at net losses before and after GILTI
inclusion and did not pay additional U.S. federal cash taxes.
Furthermore, the Tax Act limits the carryover of net operating losses generated after tax years 2017 to 80%
of taxable income and eliminates the ability to carryback. Losses incurred before January 1, 2018 have not changed
and are not limited to the 80% of taxable income and will continue to be carried forward 20 years. The Company
has fully utilized all pre-2018 net operating losses. Any future net operating losses generated will be carried forward
indefinitely and subject to an 80% taxable income limitation.
b. A number of the Company’s operating subsidiaries are taxed at rates lower than U.S. rates.
1. Irish Subsidiaries
The Irish operating subsidiaries qualified for a 12.5% tax rate on its trade. Interest income earned by the
Irish subsidiaries is taxed at a rate of 25%. As of December 31, 2020, the open tax years, subject to review by the
applicable taxing authorities for the Irish subsidiaries, are 2015 and subsequent years.
2. Israeli Subsidiary
The Israeli subsidiary enjoys certain tax benefits in Israel, particularly as a result of the “Approved
Enterprise” and the “Benefited Enterprise” status of its facilities and programs through 2019, and the
“Technological Preferred Enterprise” status of its facilities and programs since 2020.
The Israeli subsidiary has been granted “Approved Enterprise” and “Benefited Enterprise” status under the
Israeli Law for the Encouragement of Capital Investments. For such Approved Enterprises and Benefited
Enterprises, the Israeli subsidiary elected to apply for alternative tax benefits—the waiver of government grants in
return for tax exemptions on undistributed income. Upon distribution of such exempt income, the Israeli subsidiary
will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s or Benefited
Enterprise’s income. Such tax exemption on undistributed income applies for a limited period of between two to
ten years, depending upon the location of the enterprise. During the remainder of the benefits period (generally until
the expiration of ten years), a corporate tax rate not exceeding 23% will apply.
The Israeli subsidiary is a foreign investor company, or FIC, as defined by the Investment Law. FICs are
entitled to further reductions in the tax rate normally applicable to Approved Enterprises and Benefited Enterprises.
Depending on the foreign ownership in each tax year, the tax rate can range between 10% (when foreign ownership
sf-4200376
F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
exceeds 90%) to 20% (when foreign ownership exceeds 49%). There can be no assurance that the subsidiary will
continue to qualify as an FIC in the future or that the benefits described herein will be granted in the future.
The Company’s Israeli subsidiary’s tax-exempt profit from Approved Enterprises and Benefited
Enterprises is permanently reinvested as the Company’s management has determined that the Company does not
currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt
income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute
dividends out of such tax-exempt income.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic
Policy for the 2017 and 2018 Budget Years), 2016, which includes the Amendment to the Law for the
Encouragement of Capital Investments, 1959 (Amendment 73) (the “Amendment"), was published. The
Amendment, among other things, prescribes special tax tracks for technological enterprises, which are subject to
rules that were issued by the Minister of Finance during April 2017.
The new tax track under the Amendment, which is applicable to the Israeli subsidiary, is the “Technological
Preferred Enterprise”. A Technological Preferred Enterprise is an enterprise for which total consolidated revenues
of its parent company and all subsidiaries are less than 10 billion New Israeli Shekel (“NIS”). A Technological
Preferred Enterprise, as defined in the law, which is located in the center of Israel (where our Israeli subsidiary is
currently located) is subject to tax at a rate of 12% on profits deriving from intellectual property (in development
area A, the tax rate is 7.5%), subject to satisfaction of a number of conditions, including compliance with a minimal
amount or ratio of annual Research and development expenditure and Research and development employees, as
well as having at least 25% of annual income derived from exports. Any dividends distributed to "foreign
companies", as defined in the law, deriving from income from the technological enterprises will be subject to tax at
a rate of 4% if foreign entities hold at least 90% of the Company’s common stock.
Income not eligible for Approved Enterprise benefits, Benefited Enterprise benefits or Technological
Preferred Enterprise is taxed at a regular rate, which was 23% in 2020, 23% in 2019 and 23% in 2018.
The Israeli subsidiary elected to compute taxable income in accordance with Income Tax Regulations
(Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income),
1986. Accordingly, the taxable income or loss is calculated in U.S. dollars. Applying these regulations reduces the
effect of the foreign exchange rate (of NIS against the U.S. dollar) on the Company’s Israeli taxable income.
As of December 31, 2020, the open tax years, subject to review by the applicable taxing authorities for the
Israeli subsidiary, are 2018 and subsequent years.
3. French Subsidiary
In 2017, the French government passed a series of tax reforms allowing for the phased reduction in the
corporate tax rate. In 2018, the French operating subsidiary qualified for a 28% corporate income tax rate for taxable
profit up to €500 (approximately $560) and the standard corporate income tax rate of 33.33% for taxable profit
above €500 (approximately $560). In 2019, the standard corporate income tax rate is reduced to 31%, with the first
€500 (approximately $560) of taxable profit still being subject to the 28% rate. In 2020, the 28% corporate income
tax rate is became the new standard rate for all taxable profits. In 2021, the standard corporate income tax rate will
be reduced to 26.5%. In 2022, the standard corporate income tax rate will be reduced to 25%.
sf-4200376
F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
As of December 31, 2020, the open tax years subject to review by the applicable taxing authorities for the
French subsidiary are 2017 and subsequent years.
c. Taxes on income comprised of:
Year ended December 31,
2019
2020
2018
Domestic taxes:
Current
Deferred
Foreign taxes:
Current
Deferred
Income before taxes on income:
Domestic
Foreign
$
3 $
—
3 $
—
12
—
2,913
(2,187)
729 $
1,936
(600)
1,339 $
6,337
(1,449)
4,900
$
$
$
(5,680) $
6,983
1,303 $
(9,039) $
10,406
1,367 $
(6,348)
8,869
2,521
d. Reconciliation between the Company’s effective tax rate and the U.S. statutory rate:
Income before taxes on income
Theoretical tax at U.S. statutory rate
Foreign income taxes at rates other than U.S. rate
Approved and benefited enterprises benefits (*)
Technological Preferred Enterprise benefits (*)
Subpart F
Non-deductible items
Non-taxable items
Changes in uncertain tax position
Stock-based compensation expense
Deemed mandatory repatriation
Impacts of GILTI
Tax adjustment in respect of difference tax rate of foreign subsidiary
Changes in valuation allowance
Other, net
Taxes on income
2020
2018
Year ended December 31,
2019
$ 1,303 $ 1,367 $ 2,521
529
287
274
810
(33)
369
—
(154)
(239)
22
—
—
359
568
563
306
124
217
(690)
(486)
(434)
—
(1,029)
16
(666)
(3)
(62)
—
—
3,542
644
967
880
1,044
364
—
2,487
(209)
(5,005)
608
55
943
729 $ 1,339 $ 4,900
$
(*) Basic and diluted earnings per share amounts of the benefit
resulting from:
the “Approved Enterprise” and “Benefited Enterprise” status
the “Technological Preferred Enterprise benefits” status
$
$
0.01 $
— $
0.01 $
— $
—
0.00
sf-4200376
F-51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
e. Deferred taxes on income:
Significant components of the Company’s deferred tax assets are as follows:
As at December 31,
2019
2020
Deferred tax assets
Operating loss carryforward
Accrued expenses and deferred revenues
Temporary differences related to R&D expenses
Equity-based compensation
Operating leases
Tax credit carry forward
Other
Total gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Operating leases
Total deferred tax liabilities
Net deferred tax assets (*)
$ 8,778
$ 9,493
1,783
4,275
3,667
1,619
7,214
202
28,253
(15,844)
$ 12,151 $ 12,409
1,455
3,123
3,396
1,546
5,666
502
24,466
(12,315)
$ 1,546
$ 1,546
$ 1,583
$ 1,583
$ 10,605
$ 10,826
(*) $161 and $45 net deferred taxes for the years ended December 31, 2019 and 2020, respectively, are from domestic
jurisdictions.
Changes in valuation allowances on deferred tax assets result from management's assessment of the Company's
ability to utilize certain future tax deductions, operating losses and tax credit carryforwards prior to expiration. Valuation
allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future.
The net change in the valuation allowance primarily reflects a decrease in deferred tax assets on tax credit carryforward.
As of December 31, 2020, the Company’s undistributed earnings from non-U.S. subsidiaries are intended to be
indefinitely reinvested in non-U.S. operations, and therefore no U.S. deferred taxes have been recorded.
f. Uncertain tax positions:
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits based on the provisions of
FASB ASC No. 740 is as follows:
Beginning of year
Additions for current year tax positions
Additions (reductions) for prior year’s tax positions
Decrease as a result of the completion of a tax audit for prior years
Balance at December 31
Year ended December 31,
2019
$ 2,739
478
(16)
(2,164)
$ 1,037
2020
$ 1,037
387
134
—
$ 1,558
sf-4200376
F-52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
As of December 31, 2019 and 2020, there were $1,037 and $1,558, respectively, of unrecognized tax benefits that
if recognized would affect the annual effective tax rate. The Company did not accrue interest and penalties relating to
unrecognized tax benefits in its provision for income taxes during the years ended December 31, 2019 and 2020 because
such interest and penalties did not have a material impact on the Company’s financial statements.
During the year ended December 31, 2019, the Company recorded a tax benefit of $1,029 as a result of the
completion of a tax audit for prior years in a certain foreign tax jurisdiction. The reduction in the unrecognized tax benefits
balance for prior years as a result of the completion of the tax audit for the year ended December 31, 2019 was $2,164.
The Company believes that an adequate provision has been made for any adjustments that may result from tax
examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the
Company's tax audits are resolved in a manner not consistent with management's expectations, the Company could be
required to adjust its provision for income taxes in the period such resolution occurs. The Company does not expect uncertain
tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the
likelihood and timing of which are difficult to estimate.
g. Tax loss carryforwards:
As of December 31, 2020, CEVA and its subsidiaries had net operating loss carryforwards for federal income tax
purposes of approximately $4,991, which are available to offset future federal taxable income indefinitely. As of December
31, 2020, CEVA and its subsidiaries had net operating loss carryforwards for California income tax purposes of
approximately $17,759, which are available to offset future California taxable income. Such loss carryforwards begin to
expire in 2030.
As of December 31, 2020, CEVA’s Irish subsidiary had foreign operating losses of approximately $57,636, which
are available to offset future taxable income indefinitely.
h. Tax returns:
CEVA files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. With few
exceptions, CEVA is no longer subject to U.S. federal income tax examinations by tax authorities, and state and local income
tax examinations, for the years prior to 2010.
NOTE 15: COMMITMENTS AND CONTINGENCIES
a. The Company is not a party to any litigation or other legal proceedings that the Company believes could
reasonably be expected to have a material adverse effect on the Company’s business, results of operations and financial
condition.
b. As of December 31, 2020, the Company and its subsidiaries had several non-cancelable operating leases,
primarily for facilities and equipment. These leases generally contain renewal options and require the Company and its
subsidiaries to pay all executory costs such as maintenance and insurance. In addition, the Company has several fixed
service agreements with sub-contractors.
sf-4200376
F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share data)
CEVA, INC.
As of December 31, 2020, future purchase obligations and minimum rental commitments for leasehold properties
and operating leases with non-cancelable terms are as follows:
Minimum rental
commitments for
leasehold
properties
Commitments for
other lease
obligations
Other purchase
obligations
$
$
486
513
293
46
1,338
$
$
4,273
2,166
—
—
6,439
$
$
1,976
24
24
43
2,067
Total
6,735
2,703
317
89
9,844
$
$
2021
2022
2023
2024 and thereafter
Total
c. Royalties:
The Company participated in programs sponsored by the Israeli government for the support of research and
development activities. Through December 31, 2020, the Company had obtained grants from the IIA for certain of the
Company’s research and development projects. The Company is obligated to pay royalties to the IIA, amounting to 3%-
3.5% of the sales of the products and other related revenues (based on the dollar) generated from such projects, up to 100%
of the grants received. Royalty payment obligations also bear interest at the LIBOR rate. The obligation to pay these
royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required.
Royalty expenses relating to the IIA grants included in cost of revenues for the years ended December 31, 2018,
2019 and 2020 amounted to $842, $715 and $1,066, respectively. As of December 31, 2020, the aggregate contingent
liability to the IIA (including interest) amounted to $26,058.
sf-4200376
F-54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CEVA, INC.
By:
/S/ Gideon Wertheizer
Gideon Wertheizer
Chief Executive Officer
March 1, 2021
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Gideon Wertheizer and Yaniv Arieli or either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities to sign any and
all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/S/ GIDEON WERTHEIZER
Gideon Wertheizer
/S/ YANIV ARIELI
Yaniv Arieli
Title
Chief Executive Officer and Director
(Principal Executive Officer & Director)
Date
March 1, 2021
Chief Financial Officer and Treasurer (Principal
Financial Officer and Principal Accounting Officer)
March 1, 2021
/S/ PETER MCMANAMON
Director and Chairman
March 1, 2021
Peter McManamon
/S/ BERNADETTE ANDRIETTI
Director
Bernadette Andrietti
/S/ ELIYAHU AYALON
Director
Eliyahu Ayalon
/S/ ZVI LIMON
Zvi Limon
Director
/S/ JACLYN LIU
Director
Jaclyn Liu
/S/ MARIA MARCED
Director
Maria Marced
/S/ SVEN-CHRISTER-NILSSON
Director
Sven-Christer Nilsson
sf-4200376
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
Signature
/S/ LOUIS SILVER
Louis Silver
Director
Title
Date
March 1, 2021
sf-4200376
sf-4194926
The following are the subsidiaries of CEVA, Inc.
CEVA, INC.
Subsidiaries
Exhibit 21.1
Name
CEVA Limited
CEVA Development, Inc.
CEVA Inc.
CEVA Ireland Limited
CEVA DSP Limited
CEVA Services Limited
CEVA Systems LLC
Nihon CEVA K.K.
CEVA Technologies Limited
CEVA Technologies, Inc.
CEVA Germany GmbH.
CEVA France
RivieraWaves SAS
Jurisdiction of Incorporation
Northern Ireland
California
Cayman Islands
Republic of Ireland
Israel
Republic of Ireland
Delaware
Japan
Republic of Ireland
Delaware
Germany
France
France
sf-4194926
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-239813, 333-219868,
333-206274, 333-176207, 333-101553, 333-107443, 333-115506, 333-141355 and 333-160866) pertaining to the 2011
Stock Incentive Plan, 2002 Stock Incentive Plan, 2002 Employee Stock Purchase Plan, 2000 Stock Incentive Plan, Parthus
Technologies 2000 Share Incentive Plan, Chicory Systems, Inc. 1999 Employee Stock Option/Stock Issuance Plan, and
Amended and Restated 2003 Director Stock Option Plan of CEVA Inc. (formerly ParthusCeva, Inc.) of our reports dated
March 1, 2021, with respect to the consolidated financial statements of CEVA Inc., and the effectiveness of internal
control over financial reporting of CEVA Inc., included in this Annual Report (Form 10-K) for the year ended December
31, 2020.
Tel-Aviv, Israel
March 1, 2021
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Gideon Wertheizer, certify that:
1.
I have reviewed this Annual Report on Form 10-K of CEVA, Inc. (the “Company”);
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2021
By: /s/ Gideon Wertheizer
Gideon Wertheizer
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Yaniv Arieli, certify that:
1.
I have reviewed this Annual Report on Form 10-K of CEVA, Inc. (the “Company”);
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2021
By: /s/ Yaniv Arieli
Yaniv Arieli
Chief Financial Officer
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EXHIBIT 32
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of CEVA, Inc. (the “Company”) for the year ended December 31,
2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Gideon
Wertheizer, Chief Executive Officer of the Company, and Yaniv Arieli, Chief Financial Officer of the Company, each
hereby certifies, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company at the dates and for the periods indicated.
This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates it by reference.
Date: March 1, 2021
/s/ Gideon Wertheizer
Gideon Wertheizer
Chief Executive Officer
/s/ Yaniv Arieli
Yaniv Arieli
Chief Financial Officer
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